• Revenue and PATMI met 23.1% and 24.4% respectively of our FY19 estimate
• YoY higher PATMI driven by increase in associates/JV, partially offset by lower EBIT
• Maintain Accumulate, new target price of $3.56 (previously $3.57)

The Positives

+ Contribution from both associates and JV exceeded our growth expectation. Guidance given in the previous quarter during the 4Q FY18 results briefing was for more Rolls Royce engines coming in (positively contributing to JV), but no detail on profit level nor timeline was disclosed. We were expecting JV contribution to ramp-up only in 2019.

The higher contribution by associates is likely from Eagle Services Asia (ESA), which is the engine shop for the Pratt & Whitney PW4000 engine. Operators have delayed their retirement of the classic Boeing 747 fleet due to low fuel prices (PW4000 engine is installed on the B747), and this has sustained the associates profit.

The Negatives

– Core Company EBIT remains weak. The 5.5% YoY decline in revenue outpaced the 2.6% YoY decline in opex, thus resulting in the margin compression at the Company EBIT level. The two largest cost components of staff costs (51% of opex) and material costs (17% of opex) were 1.2% lower YoY and 3.7% lower YoY respectively, lagging the revenue decline.

Outlook

The outlook is improving, but remains challenging. Core Company operations remain challenged, but there appears to be a pipeline for engine shop visits. At the same time, competition from other MRO players is not expected to abate. SIAEC has been investing in various productivity and revenue generation activities; and we await evidence of their maturity to contribute positively.

Maintain Accumulate; new target price of S$3.56 (previously $3.57)

We have adjusted our estimates for FY19e core EBIT 3.7% lower and associates/JV contribution 16.8% higher than previous. Resultant FY19e PATMI is 9.0% higher than previous estimate; and FY20e PATMI is marginally 0.5% lower than previous estimate. 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 4.1%. Our target price gives an implied FY19e forward P/E multiple of 22.0 times.