- Operational efficiency to compensate for labour cost pressure in Singapore. Fairly low threat of new entrants despite growing Line maintenance market at Changi Airport.
- Remain positive after the non-deal roadshow and reiterate our view that SIAEC offers the best proxy to the structural air traffic growth in the region.
- Maintain BUY with TP of SGD5.75.
We hosted the management of SIA Engineering (SIAEC) to a non-deal roadshow in Singapore yesterday. Management acknowledged investors’ concern over labour cost pressures in Singapore, but highlighted that its operational efficiency would compensate the disadvantage of operating in a country with relatively high labour cost base.
Responding to a question regarding potential threats from new entrants to Changi Airport’s Line maintenance market, management thinks that the threat is fairly low and believes that access to hangar facilities remains a competitive advantage for the group. SAESL, its engine JV with Rolls-Royce, expects to execute heavy shop visits for the Trent 1000 series of engine in two years’ time.
What’s Our View
We remain positive post the non-deal roadshow and reiterate our view that SIAEC offers the best proxy to the structural air traffic growth in the region. However, we sense the cautious undertone in management’s commentary and see it as an attempt to manage market expectations. The stock continues to offer an attractive yield of about 5% over our forecast years. Maintain BUY with TP of SGD5.75, based on 23x FY3/15E P/E.
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