Despite the pressures on the aviation industry, we note that the current longer term outlook for MRO service providers such as SIAEC remains positive, with the global passenger aircraft fleet set to grow by 3.8% p.a. from now till 2030 to 32,551, as forecasted by Airbus. According to Team SAI Consulting, for 2012-2022, Asia’s MRO market will see CAGR growth of 6.1%, versus 2.9% for Europe and only 0.9% for the Americas. With its Singapore MRO base and regional JVs/associates, SAIEC can benefit from the geographic distribution of the growth, although we also note that the strong SGD may affect its margins. Using a higher P/E peg of 17.1x (one standard deviation above the 4-year average of 14.6x) and our basic EPS forecast of 26.2 S cents for 3QFY13F-2QFY14F, we increase our fair value estimate from S$4.14 to S$4.48 but maintain our HOLD rating on SIAEC on valuation grounds.
Stable outlook in near term
The ongoing contraction in air freight volumes (usually a leading indicator of air travel) and poor consumer confidence have continued to weigh on the outlook for the aviation sector. If the poor sentiment persists, growth in the global fleet could take place more gradually and this would affect the future growth track of maintenance, repair and overhaul (MRO) service providers. The management of SIA Engineering (SIAEC) expects that demand for the company’s core businesses will be sustained in the near term.
Growth over the LT in MRO
We note that the current longer term outlook for MRO service providers such as SIAEC remains positive, with the global passenger aircraft fleet set to grow by 3.8% p.a. from now till 2030 to 32,551, as forecasted by Airbus. According to Team SAI Consulting, for 2012-2022, Asia’s MRO market will see CAGR growth of 6.1%, versus 2.9% for Europe and only 0.9% for the Americas. With its Singapore MRO base and regional JVs/associates, SAIEC can benefit from the geographic distribution of the growth, although we also note that the strong SGD may affect its margins.
1HFY13 financials in line with expectations
To recap, 1HFY13 financial results were generally in line with our expectations. Revenue climbed by 6.4% YoY to S$585m, attributable mainly to revenue from materials, fleet management program and line maintenance. Operating margin declined 1.4ppt from 1HFY12 to 11.1% in 1HFY13 because of higher material cost, exchange loss, and increase in subcontract and staff costs. The share of profits from associated and joint venture companies increased 1.4% YoY to S$78.8m, accounting for 51% of SIAEC’s pre-tax profits.
Raise FV to S$4.48; maintain HOLD
Using a higher P/E peg of 17.1x (one standard deviation above the 4-year average of 14.6x) and our basic EPS forecast of 26.2 S cents for 3QFY13F-2QFY14F, we increase our fair value estimate from S$4.14 to S$4.48 but maintain our HOLD rating on SIAEC on valuation grounds.
The ongoing contraction in air freight volumes (usually a leading indicator of air travel) and poor consumer confidence have continued to weigh on the outlook for the aviation sector. If the poor sentiment persists, growth in the global fleet could take place more gradually and this would affect the future growth track of maintenance, repair and overhaul (MRO) service providers. The management of SIA Engineering (SIAEC) expects that demand for the company’s core businesses will be sustained in the near term.
Growth over the LT in MRO
We note that the current longer term outlook for MRO service providers such as SIAEC remains positive, with the global passenger aircraft fleet set to grow by 3.8% p.a. from now till 2030 to 32,551, as forecasted by Airbus. According to Team SAI Consulting, for 2012-2022, Asia’s MRO market will see CAGR growth of 6.1%, versus 2.9% for Europe and only 0.9% for the Americas. With its Singapore MRO base and regional JVs/associates, SAIEC can benefit from the geographic distribution of the growth, although we also note that the strong SGD may affect its margins.
1HFY13 financials in line with expectations
To recap, 1HFY13 financial results were generally in line with our expectations. Revenue climbed by 6.4% YoY to S$585m, attributable mainly to revenue from materials, fleet management program and line maintenance. Operating margin declined 1.4ppt from 1HFY12 to 11.1% in 1HFY13 because of higher material cost, exchange loss, and increase in subcontract and staff costs. The share of profits from associated and joint venture companies increased 1.4% YoY to S$78.8m, accounting for 51% of SIAEC’s pre-tax profits.
Raise FV to S$4.48; maintain HOLD
Using a higher P/E peg of 17.1x (one standard deviation above the 4-year average of 14.6x) and our basic EPS forecast of 26.2 S cents for 3QFY13F-2QFY14F, we increase our fair value estimate from S$4.14 to S$4.48 but maintain our HOLD rating on SIAEC on valuation grounds.
No comments:
Post a Comment