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Singapores SIA Engineering target price cut to 3.77 sgd - DBS Vickers


Singapore (Thomson Financial) - DBS Vickers said it has slashed its target price for SIA Engineering Co to 3.77 Singapore dollars from 4.93 dollars after the company's disappointing third quarter to December results.

SIA Engineering reported Tuesday its net profit fell 3.1 percent to 53.6 million dollars from a year ago, as operating profit declined 27.9 percent to 19.1 million dollars due to higher expenses.

"Results came in below expectations, with revenue growing only 1 percent year-on-year to 248.6 million dollars and operating margins falling 3 percent year-on-year and 5.1 percent quarter-on-quarter," said DBS Vickers in a note.

The company's operating expenses grew 5 percent from a year ago due to additional bonus payments for the company's 60th anniversary payment to staff.

While demand for repair and aircraft maintenance will likely remain stable with parent Singapore Airlines as a main customer, and line maintenance will benefit from continued growth in air traffic, SIA Engineering's operating margins may remain under pressure from higher labor costs, said the firm.

SIA Engineering's operating margins fell to 7.7 percent in the third quarter from 10.8 percent a year ago.

"We have cut our forward earnings by 8-10 percent, the stock is trading at a price to earnings ratio of 15.1 times for the year to March 2008 and 13.8 times in the year to March 2009, which is not cheap versus single- digit growth," said the brokerage.

DBS Vickers is sticking with a "hold" recommendation on the stock.

At 2.53 pm, SIA Engineering was down 7 Singapore cents at 3.73 dollars on volume of 202,000 shares.

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