“Over the near-term, we believe there will be pressure over its airframe and component overhaul services (ACS) segment until the newer aircraft models are due for workshop visits, which in our view will not happen until at least three to five years later,” he adds.
OCBC is keeping its “hold” call on SIAEC and lowering its fair value estimate to $3.35, from $3.70 previously.
“All considered, given the lack of near-term catalysts and structural change in MRO industry, we pare our FY18F/19F PATMI by 1.6%/2.3%, and lower our terminal growth assumption from 2% to 1%,” Chua says.
SIAEC saw its earnings rise 7.3% to $38.1 million for the 2Q ended September, as revenue grew 3.7$ to $274.7 million on the back of growth in airframe and component overhaul and line maintenance revenue.
See also: UOBKH raises TP on SIA to $6.22, FY2026 earnings to see lift on fuel cost savings
See: SIA Engineering's 2Q earnings rise 7.3% to $38.1 mil
However, Maybank Kim Eng Research’s analyst Neel Sinha says this was below the brokerage’s expectations.
“The anticipated double-digit rebound in Repair & Overhaul (R&O) remained elusive,” Sinha says. “Hence, we cut FY18/FY19 profit estimates by 21-23% factoring a slower rebound and higher costs at new ventures.”
Maybank is keeping SIAEC at “hold” and lowering its target price to $3.50, from $3.70 previously.
While Sinha is positive on the long term potential of several new partnerships and joint ventures announced this year, the analyst notes that material contributions from these ventures will likely take 6-8 quarters.
“In the near term, the business continues to face high competitive pressures from peers and OEMs and structural changes in MRO cycles with new generation aircraft,” Sinha adds.
As at 4.46pm, shares of SIAEC are trading 1 cent lower at $3.27, implying 24 times FY18 earnings with a dividend yield of 3.6%.
