The outlook remains challenging. Improvement in technology and design has led to better airframe and engine reliability, resulting in the structural issue of lower work content. SIAEC has a strong balance sheet with a net cash position. It has the financial flexibility to mitigate the challenges through entering into new ventures with the OEMs.
Downgrade to Reduce (from Neutral) with unchanged target price of S$3.70
We do not make any adjustments to our full year forecast for FY18e. The 3.3% forecasted dividend yield does not adequately compensate for the downside risk in price. There is scope for FY18e earnings and dividend forecast to be cut, if work content does not pick up in the remaining quarters.
Our target price gives an implied FY18e forward P/E multiple of 24.9x. This compares against the STI next 12-months forward P/E multiple of 14.9x.