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Broker's take: UOB Kay Hian upgrades SIA Engineering to 'buy'

UOB Kay Hian has upgraded its call on SIA Engineering to "buy", saying that its engine maintenance, repair and overhaul (MRO) earnings could be lifted due to an expected surge in engine shop visits in 2018.

As SIA Engineering has the capability to perform checks on most engine types, this should boost engine MRO earnings from a six-year low, said UOB Kay Hian.

Despite the firm's underperformance in 2017, with its stock price down 7.1 per cent year on year, things could change this year, said analysts, lifting its target price to S$4 from S$3.50 previously.

Analysts also expect an improvement in joint venture (JV) and associate income in fiscal 2019.

As at first half 2018, this segment's net profit accounted for 59 per cent of total net profit and grew 16 per cent on year, but this was underpinned by non-engine MRO growth.

Given industry authority Aviation Week's prognosis for strong engine shop visits in Asia-Pacific, analysts also raised their assumption on associate and JV contribution for fiscal 2019 by 7.1 per cent, factoring in higher engine MRO profits.

After factoring in higher JV profits, UOB Kay Hian raised its fiscal 2018 and 2019 net profit forecasts by 1.1 per cent and 7.2 per cent respectively.

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