The outlook is improving, but remains challenging. Management appears to have some visibility on the pipeline for engine shop visits. Our view is that even when engine shop visits return, the long-term normalised profit contribution will still be lower than historical level, due to lower work content. At the same time, competition from other MRO players is not expected to abate.
Maintain Accumulate; higher target price of S$3.57 (previously $3.51)
We have retained our Accumulate rating despite expecting lower PATMI in FY19e. The return of engine shop visits will be a positive catalyst for re-rating. However, we believe the profit recovery will be L-shaped. We expect FY20e earnings growth to be driven by contribution from the associates/JVs. SIAEC has a strong balance sheet in a net cash position and has positive free cash flow. Current dividend level of 13 cents is sustainable for a current yield of 3.9%.