SIA Engineering Company's (SIAEC) FY15 results slightly missed our expectations on lower airframe and component overhaul revenue (ACS), but partially mitigated by higher fleet management (FMP) and Line Maintenance (LM) revenue. Share of profits of associated and JV companies fell by 34.6% to S$106.3m. Consequently, FY15 PATMI came in slightly below our expectation, recording a 31.0% decrease to S$183.3m, which formed 97.3% of our forecasts. With newer aircraft & engine models designed with maintenance costs as a consideration, we believe the intervals between maintenance checks have increased. Hence, we think SIAEC is and will still be in this cycle of declining workshop visits until the new aircraft & engine models are due for these checks. In our view, rebound is unlikely to happen within FY16. Expecting weak outlook to sustain, we decrease our FY16F PATMI by 10.8% and introduce FY17F numbers. Consequently, our FV lowers from S$3.80 to S$3.45, still based on 20x FY16F PER (3-year historical mean). Maintain SELL.
FY15 results slightly missed our expectations
SIA Engineering Company Limited (“SIAEC”) reported an 11.3% YoY decline in its 4QFY15 revenue to S$276.0m while 4QFY15 operating expenses fell by only 8.7% YoY to S$252.9m, which resulted in a 2.6ppt decrease in its operating profit margin to 8.4%. This led to a 36.5% YoY drop in 4QFY15 PATMI to S$41.4m. For FY15, SIAEC’s revenue decreased by 4.9% to S$1.12b on lower airframe and component overhaul revenue (ACS), but partially mitigated by higher fleet management (FMP) and Line Maintenance (LM) revenue. Share of profits of associated and JV companies fell by 34.6% to S$106.3m for FY15 on two main reasons: 1) engine improvement modifications and extension of on-wing life of certain engines, and 2) phasing out of older engine models. Consequently, FY15 PATMI was slightly disappointing as it decreased 31.0% to S$183.3m, which formed 97.3% of our forecasts.
New aircraft/engine types require lesser workshop visits
With newer aircraft & engine models designed with maintenance costs as a consideration, we believe the intervals between maintenance checks have increased. Hence, we think SIAEC is and will still be in this cycle of declining workshop visits until the new aircraft & engine models are due for these checks. In our view, rebound is unlikely to happen within FY16. Hence, to help mitigate decline from its ACS segment, SIAEC is looking to increase its revenue from FMP and LM segments through its wide network of LM stations in 34 airports. Also, management has reiterated tight cost management continues to be the key focus going forward. And in a labour intensive business, SIAEC is using this down-cycle to train its labour force with cross-functional skill sets (i.e. staff specialised in workshop maintenance trained with line maintenance skill sets etc.) to improve workforce allocation efficiency.
Maintain SELL on muted outlook
Expecting the weak outlook to sustain, we decrease our FY16F PATMI by 10.8% and introduce FY17F numbers. Consequently, our FV lowers from S$3.80 to S$3.45, still based on 20x FY16F PER (3-year historical mean). Maintain SELL.
SIA Engineering Company Limited (“SIAEC”) reported an 11.3% YoY decline in its 4QFY15 revenue to S$276.0m while 4QFY15 operating expenses fell by only 8.7% YoY to S$252.9m, which resulted in a 2.6ppt decrease in its operating profit margin to 8.4%. This led to a 36.5% YoY drop in 4QFY15 PATMI to S$41.4m. For FY15, SIAEC’s revenue decreased by 4.9% to S$1.12b on lower airframe and component overhaul revenue (ACS), but partially mitigated by higher fleet management (FMP) and Line Maintenance (LM) revenue. Share of profits of associated and JV companies fell by 34.6% to S$106.3m for FY15 on two main reasons: 1) engine improvement modifications and extension of on-wing life of certain engines, and 2) phasing out of older engine models. Consequently, FY15 PATMI was slightly disappointing as it decreased 31.0% to S$183.3m, which formed 97.3% of our forecasts.
New aircraft/engine types require lesser workshop visits
With newer aircraft & engine models designed with maintenance costs as a consideration, we believe the intervals between maintenance checks have increased. Hence, we think SIAEC is and will still be in this cycle of declining workshop visits until the new aircraft & engine models are due for these checks. In our view, rebound is unlikely to happen within FY16. Hence, to help mitigate decline from its ACS segment, SIAEC is looking to increase its revenue from FMP and LM segments through its wide network of LM stations in 34 airports. Also, management has reiterated tight cost management continues to be the key focus going forward. And in a labour intensive business, SIAEC is using this down-cycle to train its labour force with cross-functional skill sets (i.e. staff specialised in workshop maintenance trained with line maintenance skill sets etc.) to improve workforce allocation efficiency.
Maintain SELL on muted outlook
Expecting the weak outlook to sustain, we decrease our FY16F PATMI by 10.8% and introduce FY17F numbers. Consequently, our FV lowers from S$3.80 to S$3.45, still based on 20x FY16F PER (3-year historical mean). Maintain SELL.
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