SINGAPORE (May 17): DBS and OCBC are maintaining their “hold” calls on SIA Engineering with target prices of $3.84 and $3.75 respectively.
SIA Engineering reported 4Q17 PATMI of $45.9 million came above analysts’ expectations, increasing 11% from a year ago. This was mainly due to better showing from the associates line, as engine JV Eagle Services Asia secured higher workload on PW4000 engines.
FY17 revenue only fell 0.8% to $1.1 billion, bolstered by a 11.5% increase in line maintenance revenue.
According to DBS analyst Suvro Sarkar, further catalysts are not imminent and the line maintenance is SIA Engineering’s only growth area at present while heavy maintenance and engine repair suffers from lower work content and fleet management faces competitive pressure.
“SIA Engineering’s strategic tie-ups with OEMs and other related companies are a step in the right direction but will not be earnings-accretive in the near term,” says Sarkar.
Sarkar also views the 5 cents special dividend as somewhat underwhelming but reflects due caution from management amid structural challenges in the MRO industry.
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The aircraft & component overhaul services will likely remain muted over the near-term due to lower work content.
However, OCBC lead analyst Eugene Chua expects line maintenance revenue to grow steadily as the traditional heavier checks on new-generation aircrafts are now broken down into multiple phases on the apron itself to reduce aircraft ground time in the hangars.
“Over the long-term, we believe SIA Engineering will benefit from the growth in aircraft fleet worldwide,” says Chua.
Shares of SIA Engineering are currently trading at $3.89.
