MTU Aero Engines Earnings: Adjusted EBIT Margin Widens to Solid 13.7%

Wide-moat MTU Aero Engines delivered strong first-quarter results with adjusted EBIT of EUR 212 million, up 62% compared with the low base of the previous quarter. Adjusted EBIT margin widened to 13.7%, with a favorable business mix and lower channel costs as the main contributors. The group's revenue of EUR 1.54 billion was up 26% on a like-for-like basis; growth was mainly attributed to higher deliveries of the geared turbofan engine and increased business with industrial gas turbines. The recovery of passenger traffic in China, supported by more relaxed travel policies, helped fuel the revenue growth. However, MTU Aero Engines continues to face supply chain challenges, with an order backlog up 2% from the previous year-end. Despite this, management confirmed its guidance for the full year and recalled that the agreed salary increases will become effective after the second half of 2023. Overall, the company's results were generally in line with our expectations, and as such, we maintain our EUR 210 fair value estimate. At present, the shares appear unattractive.