SIA Engineering

UOBKayhian on 7 May 2014

FY14F PE (x): 19.1
FY15F PE (x): 19.3
Earnings largely flat, but shareholders still rewarded with a 105% payout. FY14 net profit
was 2.2% below consensus but in line with our estimates. In FY14, SIA Engineering
(SIAEC) incurred $S3.6m in forex hedging loss vs a S$1.2m gain in the previous year.
Adjusting for the anomaly, earnings would have been flat yoy. 4QFY14’s operating
margin improved 0.1ppt as staff costs declined 3.8%. SIAEC declared a 123 S cents
final dividend and a 5 S cents special dividend, taking total payout for the year to 105%.
Upgrade to HOLD. While challenges persist, SIAEC has demonstrated the ability to
partially diversify operations out of Singapore. Our DDM valuation is tweaked to reflect
higher ROE, following the 105% payout. Based on DDM valuation and rolled-forward
earnings, our new target price is S$4.72. (COE: 6.9%, Terminal Growth rate: 1.2%). At
our target price the stock offers a trailing FY15F dividend yield of 4.66%. Entry price is
S$4.50.