2Q & 1HFY3/13 results in line. SIA Engineering (SIE) reported
1HFY3/13 PATMI of SGD137.2m, which made up 48% of ours and
consensus estimates. 2QFY3/13 PATMI of SGD67.1m was 5.8% lower
YoY, negatively affected by a SGD10.6m swing in foreign exchange
effects. 2QFY3/13 revenue growth of 4.4% YoY was negated by
expenses rising 6.1% YoY, while an increased interim dividend was
declared (SG 7.0 cts/sh, up by SG 1.0 cts/sh) to ‘achieve a better
balance between the interim and final dividends’. Management clarified
that this did not guarantee a corresponding increase in final dividend.
We maintain our forecasts and roll forward our valuations to FY3/14
earnings, Target Price adjusted to SGD4.17. Maintain HOLD.
FX effects cannot be ignored. Excluding the SGD10.6m FX effects, net profit for 2QFY3/13 would have been 10.1% higher YoY (adjusting for SGD3.5m FX loss in 2QFY3/13, SGD7.1m FX gain in 2QFY3/12). Management had stated that the FX effects were a result of revaluation gains/losses on the balance sheet as well as hedging gains/losses. The USD weakened against the SGD by ~3% in the three months of July- September 2012, and should the USD continue its slide we could possibly see weaker 2HFY3/13 results as well.
Aviation MRO outlook: forecasting moderate growth. The macro outlook for the aviation MRO space is still forecasted to grow at a CAGR of 3.7% p.a. in the five years to 2017, with Asia likely to be the region of strongest growth. SIE’s segment results do seem to corroborate this view, but again, FX movements distort the numbers that would otherwise have painted a rosier picture (Fig 5).
Not moving the needle, maintain HOLD. We roll forward our valuations to FY3/14 earnings, still based on mid-cycle 15.2x PER, with Target Price adjusted to SGD4.17. Maintain HOLD – existing investors can continue to enjoy the stable dividend yields of ~5.5% p.a.
FX effects cannot be ignored. Excluding the SGD10.6m FX effects, net profit for 2QFY3/13 would have been 10.1% higher YoY (adjusting for SGD3.5m FX loss in 2QFY3/13, SGD7.1m FX gain in 2QFY3/12). Management had stated that the FX effects were a result of revaluation gains/losses on the balance sheet as well as hedging gains/losses. The USD weakened against the SGD by ~3% in the three months of July- September 2012, and should the USD continue its slide we could possibly see weaker 2HFY3/13 results as well.
Aviation MRO outlook: forecasting moderate growth. The macro outlook for the aviation MRO space is still forecasted to grow at a CAGR of 3.7% p.a. in the five years to 2017, with Asia likely to be the region of strongest growth. SIE’s segment results do seem to corroborate this view, but again, FX movements distort the numbers that would otherwise have painted a rosier picture (Fig 5).
Not moving the needle, maintain HOLD. We roll forward our valuations to FY3/14 earnings, still based on mid-cycle 15.2x PER, with Target Price adjusted to SGD4.17. Maintain HOLD – existing investors can continue to enjoy the stable dividend yields of ~5.5% p.a.
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