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

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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.

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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."