Maybank Kim Eng raises SIA Engineering estimates as associate earnings surge

2-4% outlook increase for FY14-16.

Reacting to SIA Engineering's latest quarterly results, Maybank Kim Eng said that "we remain positive on SIAEC and raised our estimates by 2%-4% over FY14-16, mainly to account for better-than-expected performance from its associates."

Earnings for the Associates & JVs increased by 19% YoY for 1HFY03/14. The combined earnings from SAESL & IECO increased by 13% YoY for 1HFY03/14 (34% of PBT) due to growing demand for maintenance work with the influx of Trent engines into the region, reported Maybank.

"We were positively surprised by the strong contributions from the Associates for 1HFY03/14 (+30% YoY, 25% of PBT), mainly due to strong contributions from the group’s cluster of Line & Component Associates," said Maybank.

"While the core Line, Repair & Overhaul business of the company continue to face margin pressure from higher labour cost, longer term outlook remains bright, in our view," it added.

"Changi Airport’s plan to double its capacity over the next decade will increase the amount of workload for MRO companies based in Singapore. As a dominant player at Changi’s Line Maintenance market, SIAEC is a direct proxy to this trend. The group’s expansion into the Philippines will increase its competitiveness by tapping into cheaper sources of labour," it said further.

The research firm noted that SIAEC is a key beneficiary of plans to double Changi Airport’s capacity over the next decade.