Company Name: SIA ENGINEERING CO LTD
| Research House: UOB KayHian | Price Call: SELL | Target Price: 3.80 |
UOB Kay Hian reiterated its sell recommendation on SIA Engineering and said investors looking for dividend yield should instead buy shares of Singapore Technologies Engineering (ST Engineering).
SIA Engineering gets two-thirds of its revenue from parent Singapore Airlines, which has been cutting capacity at its cargo unit.
“The market has not priced in risk of capacity cuts. Maintenance revenue is typically based on flight cycles and as airlines cut capacity due to weak demand, revenue would be impacted,” UOB Kay Hian said in a research note.
The brokerage maintained its sell recommendation on SIA Engineering but raised the target price to $3.80 from $3.30 a share.
It also said that the orderbook of rival aircraft maintenance firm ST Engineering is backward loaded and less vulnerable to a cyclical slowdown.
Singapore Airlines said last month it was cutting its cargo capacity by 20% as global economic slowdown led to persistent weakness in demand and high jet fuel prices piled pressure on its profitability.
SIA Engineering’s shares had risen by around 20% so far this year, outperforming the 13% gain in the broader Singapore market.
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