- 2QFY3/15 EPS below due to lower revenue & margins. Interim DPS cut to 6 SGD cts from seven.
- Cut FY3/15E-17E EPS by 22-25% and TP to SGD3.50 from SGD4.20, still at 20x FY3/16E P/E.
- Reiterate SELL with de-rating catalysts from further earnings contractions.
2QFY3/15 net income fell 40.7% YoY to SGD42.1m. A 3.0% decline in revenue from lower airframe & component overhaul sales and a 1.5% rise in operating expense shaved EBIT margins to 5.6% (1QFY3/15: 7.0%, 2QFY3/14: 9.7%). Contributions from engine repair shops were down 40.1% to SGD20m. Management attributed this to an extension of the “on-wing” life of certain models and accelerated retirement of older engines. Interim DPS was cut to 6.0 SGD cts from 7.0 cts. 1HFY3/15 EPS accounted for only 41% of our below-Street FY3/15E.
FY3/15E weakest in a decade, valuations stretched
With its workload shrinking at a time of rising operating costs, we expect earnings to remain depressed. Airlines are scaling back capacity to combat a regional surplus. We lower our FY15E-17E EPS by another 22-25% and expect FY3/15E DPS to be cut to a mere 16 SGD cts from FY3/14’s 25. Earnings are set to be the weakest in a decade.
Although SIAEC’s forward-looking management may continue to roll out initiatives to develop its business, we doubt these will be material, near term. Valuations are stretched at 30x FY3/15E P/E and 3.3% yields against its cyclical earnings contractions. We lower our TP to SGD3.50 from SGD4.20 as we roll over to 20x FY3/16E P/E, 0.5 SD above 10-year mean. Reiterate SELL.
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