SIA Engineering Co Ltd (SIE SP): A Steady Climb Towards Recovery

Recommendation: BUY (Maintained)

Target Price: S\$2.70

Current Price: S\$2.35

Upside Potential: +15.0%

Company Overview

SIA Engineering Co Ltd (SIAEC) is Asia’s leading provider of aircraft maintenance, repair, and overhaul (MRO) services. In 2024, the company was recognized with the prestigious MRO Asia-Pacific Awards by Aviation Week for its stellar aftermarket services and innovative marketing campaigns. The company operates predominantly in the Industrials sector and is a majority-owned subsidiary of Singapore Airlines (SIA), which holds a 77.5% stake.

3QFY25 Results: Progress Amid Challenges

SIAEC reported a net profit of S\$38.2 million for 3QFY25, representing a 7.4% quarter-on-quarter (qoq) increase and a significant 42.0% year-on-year (yoy) growth. This performance aligns with expectations, with the company’s 9MFY25 earnings reaching 74.4% of the full-year forecast. Revenue for the quarter rose by 5.6% qoq and 11.3% yoy to S\$324.8 million, driven by sustained improvements in line maintenance business at Changi Airport, which has almost returned to pre-pandemic levels.

Key Financial Metrics

Performance Drivers

• Operating Profit: Operating profit improved moderately to S\$4.7 million in 3QFY25, compared to S\$2.4 million in 2QFY25. However, the figure remains below pre-pandemic quarterly levels of S\$15-20 million due to global supply chain constraints.
• JVs and Associates: Contributions from joint ventures and associates were robust, reaching S\$90.8 million in 9MFY25 (+23.0% yoy). Growth came primarily from engine and component services as well as airframe and line maintenance segments.
• Flight Activities: Changi Airport’s flight activity has recovered to 99.6% of pre-pandemic levels as of December 2024. SIAEC’s share of line maintenance business volume at the airport increased to an average of 85% during 9MFY25, up from 80% pre-pandemic.

Outlook and Challenges

While demand for MRO services remains strong, SIAEC continues to face supply chain constraints, tight manpower, and rising costs. The International Air Transport Association expects these issues to persist through 2025. To mitigate these challenges, SIAEC is accelerating the digitalization of its operations and redesigning processes to improve inventory management and delivery timelines.

Growth and Expansion

SIAEC is actively expanding its capacities and capabilities. Notably, the company is exploring a partnership to invest in line maintenance and ground services in Xiamen, China. Although these initiatives are expected to drive long-term growth, they may impose start-up and development costs over the next 2-3 years.

Valuation and Recommendations

SIAEC is valued at 16.8x FY26F PE, which is 1.7 standard deviations below its pre-pandemic historical mean of 23.2x. The company offers attractive dividend yields of 4.5% and 4.9% for FY25 and FY26, respectively. The report maintains a “BUY” recommendation with a target price of S\$2.70, citing proactive share buybacks and potential earnings recovery as re-rating catalysts.

Key Risks

• Margin pressure from labor and raw material cost inflation.
• Delays in project deliveries due to prolonged supply chain issues.