The company began its business as the engineering division of Singapore Airlines. In 1992, Singapore Airlines transferred its maintenance, repair and overhaul activities into an existing subsidiary to form SIA Engineering Company. The company provides line maintenance and technical ground handling services to over 200 flights into and out of Singapore Changi Airport each day for more than 60 international passenger and cargo carriers. It provides airframe and component repair and overhaul services for some of the most advanced and widely used commercial aircraft in the world today, including the Boeing 777-300ER and the Airbus A380 to more than 80 customers. More than twenty national aviation regulatory authorities, including the Civil Aviation Authority of Singapore (CAAS), the United States Federal Aviation Administration (FAA), the European Aviation Safety Authority (EASA) and the Japan Civil Aviation Bureau (JCAB), have issued approvals to the company to provide maintenance, repair and overhaul services to aircraft subject to their jurisdiction. To increase the breadth and depth of its maintenance, repair and overhaul services, the company has invested in 23 joint ventures in Singapore and overseas. The joint ventures with airlines provide expanded line maintenance capabilities, and the joint ventures with original equipment manufacturers, or OEMs, provide additional aircraft component repair and overhaul and engine and engine component repair and overhaul services. The joint ventures are located in Singapore, Australia, China, Hong Kong, Indonesia, the Philippines, Taiwan and Ireland.
Fair Value - S$3.88
RECORD QUARTERLY REVENUE
• Strong revenue growth but lower margin
• Raise revenue, lower PATMI estimates
• Longer-term outlook still intact
Strong revenue growth but lower margin.
SIA Engineering Co Ltd (SIAEC) last night reported its 3QFY12 financials. 3QFY12 revenue grew
12.6% YoY to an all-time quarterly high of S$303.4m and PATMI gained 5.3% to S$63.5m. Management attributed the growth in revenue to
1) higher fleet management programme revenue and
2) an increase in airframe and component overhaul work.
But higher subcontract and staff costs to support the increased workload during the quarter also saw EBIT margin fall to 9.4%, from 12.8% a year ago. In addition, SIAEC’s PATMI was once again boosted by stronger contributions from share of profits of joint venture and associated companies, which grew 20.1% to S$40.7m and contributed to 56.3% of pre-tax profit.
Raise FY12 revenue but lower PATMI estimates.
For 9MFY12, SIAEC’s revenue edged up 2.2% to S$853.4m and PATMI grew 2.6% to S$202.8m, meeting 77.4% and 73.9% of our previous full-year revenue and PATMI estimates. We have since made some minor adjustments to our full-year estimates in order to factor in stronger revenue growth and higher costs, despite management’s intention to improve productivity and manage costs. Our new estimates of FY12 revenue is 2.6% higher while PATMI is 1.7% lower, at S$1,130.5m and S$269.9m respectively.
Maintain BUY and S$3.88 fair value.
Despite the challenges posed by uncertainties in the global economy, management guided that demand for its services is expected to remain stable. In addition, the longer-term outlook for MRO service providers is still intact, and SIAEC is estimated to provide a dividend yield of 5%. Thus, we retain our fair value of S$3.88 per share and BUY rating on SIAEC.
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