SINGAPORE (Dec 8): OCBC Investment Research is maintaining its “underweight” rating on Singapore’s aviation stocks on weak performances and rising competition.

The research house is keeping its ratings on SIA (hold; fair value:$11.45), Tigerair (accept the offer), SIA Engineering [hold; $3.70], ST Engineering [buy; $3.22], and SATS (hold; $3.78).

In a Tuesday report, lead analyst Eugene Chua says the outlook for aviation industry remains muted as the region continues to be plagued by overcapacity.

“With the Gulf carriers expanding capacity on SIA’s key routes to Europe, and Lion Group expanding capacity within the Asia region, Chua says competition will most likely increase further for SIA Group,” says Chua.

Meanwhile, Chua says maintenance, repair and overhaul (MRO) businesses will continue to face challenges with longer maintenance cycles on the newer aircraft engines.

To recap, Singapore Airlines missed OCBC’s expectations for all three quarters of CY15, as earnings were marred by declining contributions from its aircraft MRO business, eroding passenger and cargo yields, and higher operating costs from retrofitting for premium economy.

Tiger Airways remained unprofitable, although core net loss has been narrowing with its turnaround plan making progress.

ST Engineering’s 9M15 net earnings eased 1%, dragged by its marine segment.

SIA Engineering Company’s earnings saw declines across all three quarters of CY15, driven by improved airworthiness of aircraft and engines resulting in longer intervals between workshop visits.

“SATS is the only one that reported rather resilient performance in a difficult industry, with earnings growth driven mainly by operational improvements and disciplined cost management,” says Chua.

SATS is also likely to continue its stable growth on reasons such as productivity gains and the expected improving contributions from overseas investments, he adds.