SIA Engineering to defy global demand drought

Earnings growth will average at a relatively healthy 6% for the next three years, predicts CIMB.

Catalysts will include high utilization for its hangars, at around at least 70%, and a continually growing demand for its fleet management and MRO (maintenance, repair and overhaul) services.

Here's more from CIMB:

We like SIE’s net-cash balance sheet and attractive dividend yields of about 6%. Despite a choppy global outlook, we continue to expect decent earnings growth backed by strong demand for MRO.

FY12 net profit is in line at 99% of our forecast and consensus. SIE declared a final DPS of 15 Scts, bringing FY12 DPS to 21 Scts for an 86% payout, as expected. We adjust our EPS by -0.4% for housekeeping matters and maintain Outperform and target price (blended P/E and DCF).

More work in the hangar. We expect average earnings growth of 6% for FY13-15 from an expanding fleet management programme and fleet size as well as strong demand for airframe MRO. We believe hangars are booked out with good visibility and at least 70% utilisation in the next five years.

4Q12 revenue was another record, at S$316.5m (+16% yoy), thanks to a bigger workload from fleet management, MRO and a cabin interior reconfiguration project for four B777-300 aircraft. EBITDA margins dipped to 13.5% from 14.8% in 4Q12, we believe due to higher outsourcing costs for fleet management.

JVs and associates back to pre-crisis levels. Share of profits from associates and JVs grew by about 9 % yoy to S$157m in FY12, after being hit in 2010-11. We expect 10% yoy growth in FY13-15, backed by stronger business volumes, reflecting the recovery in its engine and component business. Associates and JVs should contribute about 60% to SIE’s net profit.

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