UOBKayhian on 14 May 2015
FY15F PE (x): 31.6
FY16F PE (x): 34.0
Management maintained its cautious stance on repair and overhaul business... Most of
the discussion centred around the evolution of the repair and overhaul business. New
generation aircraft require less maintenance and airlines are breaking up maintenance
checks to include line maintenance. For example, A-checks, which are light checks
typically performed on a quarterly basis are now broken down into shorter intervals to
encompass line maintenance checks as well. Thus there are less labour hours spent on
maintenance and this has been the main reason for the 8.8% decline in repair and
overhaul revenue for FY15. Notably, most of the decline in operating revenue came
from third-parties, suggesting competitive pressure was also a reason. Maintain SELL
and lower our price target by 14% to S$3.00. We revise our valuation methodology
slightly by employing a straight DDM versus an average of DDM and PER previously. At
our fair value, SIAEC will still be trading at lofty 23x forward earnings, vs historical mean
of 16x.
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