ANALYSTS SAY: Buy, Sell, Hold (3 July 2017)

SIA Engineering: Partnerships to drive future growth

SIA Engineering Company Ltd (SIAEC) recently announced its existing JV with Pratt & Whitney (P&W), Eagle Services Asia (ESA), has been selected as the maintenance, repair and overhaul (MRO) facility in Singapore for P&W’s PW1100G-JM GTF engines, which is one of the two engine options that power the A320neo aircraft family. Unlike the B747 and A380, which are falling out of favour with airlines, the single-aisle A320neo aircraft family has fast growing demand with the proliferation of low cost carriers across the world – with a backlog of 4,937 A320neo aircraft firm orders that are yet to be delivered. In our view, the data clearly indicate the expected strong growth in demand for the MRO services of the GTF engines over the longer-term, as more A320neo aircraft are delivered over time. SIAEC and GE Aviation have also agreed to establish a new JV based in Singapore, providing engine MRO services for the GE90 and GE9X engines, but we expect the JV to take time to build up. Hence, we do not expect any near to medium impact but are positive that SIAEC’s partnerships will be one of the key drivers for future growth. Maintain HOLD with an unchanged FV of S$3.75 for now.

Jadason Enterprises Limited

Good times are here again

■ Jadason successfully turned around at net profit level in 3Q16.

■ We forecast EPS CAGR of 68.6% for FY16-19F, driven by orders from a major customer. Jadason is currently the sole supplier to this customer.

■ Having undergone extensive restructuring, Jadason is now the cheapest printed circuit board (PCB) drilling provider in Dongguan that can handle large volumes.

■ Potential re-rating catalysts are: a) better quarterly results, b) exit from SGX watch list, and c) resumption of dividend payments.

■ Initiate with Add and target price of S$0.17, based on 12.34x FY18F P/E (+2 s.d. above average forward P/E during the last earnings recovery cycle in 2004-2007).

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Singapore REITs

Supply Restraint

Supply growth to pace alongside demand recovery

In the government’s land sale programme for 2H17, the modest growth in land availability remains within our expectations with sites on the confirmed list potentially increasing supply by 9% from 2019. The smaller plots and other supply measure tweaks are clearly aimed at strengthening SME support, which suggests that the manufacturing upturn remains intact. We remain constructive on the industrial REITs on bottoming sector fundamentals in 2017, with upside growth levers from acquisitions and redevelopment opportunities. AREIT is best geared to the structural recovery and remains our top sector pick.

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