Broker's take: OCBC cuts target price for SIA Engineering

OCBC Investment Research has cut its target price for SIA Engineering (SIA Engg) on the firm's weak core earnings. It lowered the company's fair value from S$3.70 to S$3.63, but kept its "hold" rating on the stock.

SIA Engg shares fell five cents or 1.3 per cent to S$3.70 as at 11.40am on Wednesday. The stock is also trading on an ex-dividend basis.

The group said on Tuesday its net profit rose from S$41.3 million in the first quarter last year to S$198.4 million in Q1 2016.

But this was boosted by a S$141.6 million gain from the divestment of its 10 per cent stake in Hong Kong Aero Engine Services (HAESL) to Rolls-Royce Overseas Holdings and Hong Kong Aircraft Engineering Company.

The group also received a special dividend of S$36.4 million from HAESL following the divestment of HAESL's 20 per cent stake in Singapore Aero Engine Services to Rolls-Royce Singapore, bringing the overall gain from the divestment to S$178 million.

For the three months ended June 30, 2016, revenue was 2.1 per cent lower at S$271.6 million from the year-ago period due to a drop in fleet management revenue. This was mitigated in part by higher revenue from line maintenance and airframe and component overhaul.

Stripping out one-off items, the company's core profit missed the brokerage's expectations.

"As a result of the divestment gain, we expect SIAEC to declare special dividend in FY17F but at the same time cut our forecasts on weaker outlook."