SIA Engineering

UOBKayhian on 8 Nov 2013

(SIE SP/SELL/S$5.06/Target: S$4.65)
FY14F PE (x): 20.0
FY15F PE (x): 19.0

Operating profit declined 9.8% yoy on higher labour costs. The 3.3% yoy revenue growth was driven by higher airframe and component work. Full segmental breakdown will be provided during an analyst briefing later today. It appears that SIA Engineering (SIAEC) did not benefit from higher line maintenance revenue, despite a 7% rise in flight arrivals at Changi during the same period. Not surprisingly, labour costs were a key factor in the lower operating profit, with staff costs and subcontract costs rising 6.6% and 11% respectively.

Maintain SELL. We continue to value SIAEC on a DDM basis and our target price implies a fair value yield of DDM basis (COE - 6.9%, Terminal Growth rate 1%). At our target price, the stock offers a dividend yield of 4.8%.