3Q18 profit of SGD54.8m, up c4%% YoY, was in line with our expectations. Revenues slid marginally and the bottom-line growth was driven principally by associate & JV contributions, up 29% YoY. The anticipated double-digit growth in core operations is still 1-2 years away we believe. Maintain HOLD with SGD3.50 price target based on 5 year forward PER mean of 21x FY3/19E EPS (unchanged).
Core operations remain sluggish; guidance muted
Revenues slid marginally by 0.5% in 3Q, while for 9M18 it was up just 1.2%. Line maintenance revenues posted modest growth for the quarter, which was offset by the decline in fleet management revenues (from loss of a major customer in the prior quarter). Meanwhile, cost pressures exist as evidenced by the 2.1% and 2.9% YoY increases in operating costs for the 3Q18 and 9M19 periods, respectively. While 9M18 accounted for 79% of our FY18 forecast, our est.’s are unchanged as 3Q has seasonally been the strongest quarter in recent years (at c27-31% of full year profit). Management cite the operating environment to be challenging with intense competition and pricing pressure in the region, along with lighter maintenance requirements and longer maintenance cycles arising from technological advancements of new generation aircraft.
Associates & JVs delivered
Associate & JV profit grew a solid 29.1% YoY for the quarter with almost all of the growth coming from contributions from repair and overhaul (R&O) while the line maintenance contributions remained flat YoY. We expect the recent expansion in Japan (Osaka airport) should start contributing to growth over the coming 2-3 quarters.
We remain positive on the long term growth potential of a number of the new partnerships/JVs announced earlier this year, more specifically ones with Air India for line maintenance, with MOOG for maintenance of flight control systems and with General Electric for engine overhaul. That said, in the near term, these ventures will entail start-up costs and any material contributions will likely take 6-8 quarters. (Read Report)
Source : Maybank Kim Eng Research