SIA Engineering

Kim Eng on 1 Feb 2012

SIA Engineering (SIE SP): 3Q results in line with expectations
Previous day closing price: $3.47
Recommendation – Hold (maintained)
Target price – $3.66 (maintained)

SIA Engineering’s (SIE) 3QFY Mar12 results were in line with expectations. Net profit grew by 5.3% YoY for the quarter to $63.5m. Revenue grew by 12.5%, indicating a healthy workload for the quarter. Most of the
increase came from higher fleet management programme revenue and an increase in airframe and component overhaul work, which tends to be lower margin work.

Operating profit was, however, 18% lower which saw YoY margins fall from 12.9% to 9.4%, mainly due to
higher subcontract costs, and as a result of the higher revenue. But this was handily made up by associates
and joint ventures, which grew 20.1% to $40.7m. Associates now account for 56% of earnings. This is in line
with our expectations of a ramp-up in associate contributions due to continued strength in the broader Asian
commercial aviation market. The components business usually shows a pickup following a recovery in the
airframe maintenance business.

Overall, a satisfactory set of results with no surprises. We are leaving unchanged our forecast for a steady
2.7% growth in earnings for FY Mar12. The stock currently trades at 14.2x FY Mar12F EPS. SIE’s share
price should be supported by the stability of its earnings and its ability to continue paying a healthy dividend.
Maintain Hold with a target price of $3.66, based on SIE’s mid-cycle P/BV of 3x.