SIA Engineering

OCBC on 25 Jul 2012

SIA Engineering Co Ltd’s (SIAEC) 1QFY13 financial results were mostly in line with our expectations. Revenue increased 8.2% YoY to S$300.5m and PATMI grew 2.9% to S$70.1m. Revenue growth was primarily driven by its fleet management and line maintenance segments. However, SIAEC’s saw a 1.1ppt slide in its operating margin to 11.4%, causing its operating profit to contract by 0.9% to S$34.4m. Positively, SIAEC’s share of profits of JV and associated companies climbed 7.5% to S$40m, ensuring that it still recorded PATMI growth in the quarter. Going forward, management guided that demand for its services is expected to remain stable. We maintain our fair value estimate of S$4.04/share and HOLD rating on SIAEC.

1QFY13 financials in line with expectations
SIA Engineering Co Ltd’s (SIAEC) 1QFY13 financial results were mostly in line with our expectations. Revenue increased 8.2% YoY to S$300.5m and PATMI grew 2.9% to S$70.1m. Despite the growth in revenue, SIAEC’s expenses grew at an even faster rate. The higher expenses caused a 1.1ppt slide in its operating margin to 11.4% and its operating profit to contract by 0.9% to S$34.4m. Management attributed the higher expenses to increased subcontract, staff and material costs to support the increase in workload. On the positively side, SIAEC’s share of profits of JV and associated companies climbed 7.5% to S$40m, ensuring that it still recorded PATMI growth in the quarter.

Fleet management and line maintenance segments grew
SIAEC’s revenue growth in 1QFY13 was primarily driven by its fleet management and line maintenance segments. After SIAEC recorded stellar growth in its fleet management segment in FY12, the segment has continued growing. This growth can be attributed to the larger fleet of aircraft it now services under this programme.

Outlook remains stable
Going forward, management guided that demand for its services is expected to remain stable and it is confident that SIAEC’s strategic partnerships and capabilities in new-generation aircraft should help maintain its competitiveness and long-term growth potential. However, management also highlighted the possible downside risk related to the prevailing global economic uncertainties. On the group level, management will continue to focus on managing costs and efficiency in order to improve its profitability.

Maintain HOLD
Due to its stable though unspectacular financial performance, coupled with its rich valuation amid uncertainty in the global economy, we maintain our fair value estimate of S$4.04/share and HOLD rating on SIAEC.