Aerospace

Air Cargo to surge in 2018, benefitting Asian airlines most

We are bullish on the global air cargo outlook in 2018 and forecast the global air cargo industry capacity to grow only 3%-4% per annum from 2018 to 2022 while demand will surpass this, growing at 5%-6% in 2018. This will lift the industry’s cargo yields and profitability. Notably, global air cargo yields surged 17% y/y in November 2017 after five years of decline. The Asian airlines are the key beneficiaries as they carry nearly 40% of global air cargo.

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Our Absolute Stock Returns Beat the Street Since We Initiated Research Coverage

Global – Crucial Perspective is now 8 months old! We take this opportunity to review the performance of our stock ratings so far. Based on Bloomberg’s tally, our absolute return was 13.5% and has outperformed our peers’ returns by 9ppts in the past 6 months based on stock ratings. Our stock returns rank us in the #1 position among all analysts for our Outperform ratings on Orient Overseas International and for AirAsia, 2nd position for Air China …..

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Which region in the world buys the most ships and aircraft?

Global – It’s no surprise that the Asia Pacific region is now the world’s largest buyer of ships and aircraft. However the scale is staggering with the Asia Pacific region accounting for 50% and 34% of the total shipping and aircraft capacity on order. By the time these orders are delivered, the Asia Pacific region will become the world’s second largest aircraft owner with 29% market share and the second largest ship owner position with 41% market share.

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Is Airbus next after Singapore Airlines’ US$13.8 Billion Boeing order?

Global – Following the signing of its US$13.8 Billion firm order for 39 Boeing aircraft, Singapore Airlines Group’s fleet structure [which has historically been balanced 50:50] will have more Boeing than Airbus planes. This raises the probability that Singapore Airlines Group’s next aircraft order will likely be from Airbus, which could happen as early as February 2018 during the Singapore Airshow.

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Singapore Airlines can unlock value by merging SIA Engineering w/ ST Aerospace to form MRO Powerhouse

Global – Singapore Airlines can unlock value significantly via a partial or complete divestment of SIA Engineering that would yield Singapore Airlines’ shareholders a dividend in specie of S$0.81 to S$2.34 per SIA share. While highly speculative at this juncture, we believe that a merger between SIA Engineering and ST Engineering (STE:SP)’s Aerospace division (ST Aerospace) will be highly beneficial to all parties …

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SIA Engineering (SIE:SP) share price drop triggered by block trade, not fundamentals

Singapore – SIA Engineering (SIE:SP)’s share price fell 5% to S$3.28 this morning. We believe this was mainly driven by a substantial block trade amounting to a 3.5% stake in SIA Engineering and not fundamentals. Singapore Airlines Limited just announced that it has not sold any SIA Engineering shares. These shares were from an institutional investor. The MRO sector outlook is still challenging near term but it is not getting materially worse. We remain bullish on SIA Engineering’s longer term prospects. 

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Air France AF66 engine explosion to drive checks on A380s powered by GP7200 engines

Global – Air France AF66’s uncontained engine explosion will drive engine checks on Airbus A380s powered by the GP7200 engines. This is negative for manufacturer Engine Alliance, a JV between General Electric and Pratt & Whitney. Detailed GP7200 engine checks will be especially disruptive for Emirates which operates by far the the world’s largest A380 fleet. As many as 90 Emirates A380s are powered by the GP7200 engines. The GP7200-powered Airbus A380s account for 35% of Emirates’ total aircraft fleet and 45% of Emirates’ total seat capacity …

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Record year for global air cargo market to benefit Asian airlines and MRO players

Global – We expect the global air cargo market to remain strong. Asia Pacific carriers w/ the largest cargo exposure are China Airlines, Korean Air, Cathay Pacific and EVA Airways. Supply growth will be a moderate 3-4% in the next 5 years. The stronger market, coupled w/ low fuel prices, may revive passenger-to-freighter conversions which will benefit MRO players ST Engineering, SIA Engineering and HAECO.

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ST Engineering (STE:SP) 2Q17 weakened by Marine but Orderbook hits all-time high

Singapore – ST Engineering’s 2Q17 headline results were weaker than expected, hurt by additional provisions made by the Marine segment. This has led management to revise down its earnings guidance, expecting Group pre-tax profits to be comparable to 2016. On a more positive note, the Group orderbook hit a record high of S$13.5B which will support longer term growth …..

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SIA Engineering (SIE:SP) 1QFY18 results slightly weaker, recent milestones will drive future growth

SIA Engineering’s 5% y/y decline in recurring profit in 1QFY18 was slightly below our forecast. The key disappointment SAESL while ESA was the bright spot. Margin pressure remains for SIA Engineering’s core business. Although the MRO sector outlook is challenging near term, we remain bullish on SIA Engineering’s longer term prospects. Several game-changing business developments achieved during 1QFY18 will significantly enhance its competitive advantage and provide new long-term earnings growth drivers.

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