UOB Kay Hian Private Limited Wednesday, 14 May 2025 SIA Engineering (SIE SP): FY25 Earnings Slightly Miss Expectations, Investments in Growth Underway Company Overview SIA Engineering Co Ltd (SIE SP) is Asia’s leading service provider for aircraft maintenance, repair, and overhaul (MRO). [[1]] The company was recognized with the MRO Asia-Pacific Awards 2024 by Aviation Week for aftermarket services and marketing campaign. [[1]] Stock Details GICS sector: Industrials [[1]] Bloomberg ticker: SIE SP [[1]] Shares issued: 1,117.8 million [[1]] Market cap: S\$2,593.4 million (US\$1,986.0 million) [[1]] 3-month average daily turnover: US\$1.0 million [[1]] 52-week high/low: S\$2.45/S\$2.18 [[1]] Price Performance (%) 1 month: 14.3 [[1]] 3 months: 0.4 [[1]] 6 months: (4.9) [[1]] 1 year: 1.3 [[1]] Year-to-date: (2.1) [[1]] Major Shareholders SIA: 77.5% [[1]] Key Financials FY25 NAV/Share: S\$1.58 [[1]] FY25 Net Cash/Share: S\$0.43 [[1]] Analyst Recommendation Maintain BUY rating. [[2]] Target price: S\$2.70. [[2]] Upside +16.4% [[1]] FY25 Results Analysis FY25 net profit of S\$139.6 million (+43.8% yoy) was a slight miss, at 97% of full-year forecast. [[1, 2]] The miss was attributed to lower-than-projected interest income and higher tax expenses. [[1, 2]] Key operating metrics were in line, supported by strong demand. [[1, 2]] SIAEC has been proactively investing for growth, potentially leading to gestation costs in the near to medium term. [[1, 2]] Recent contract renewal with Singapore Airlines may mitigate some margin pressure. [[2]] FY25 Results Table (S\$m) Year to 31 Mar 2H FY25 2H FY24 yoy % chg 1H FY25 hoh % chg FY25 FY24 yoy % chg Prev. FY25F Actual as % of FY25F Revenue 668.9 580.2 +15.3 576.2 +16.1 1245.1 1094.2 +13.8 1203.6 103% Opex 658 578 +13.8 573 +14.8 1230.5 1091.9 +12.7 1191.7 103% EBIT 11.2 2.2 +411.7 3.4 +223.7 14.6 2.3 +534.8 11.9 122% Core EBIT 10.6 4.9 +114.0 4.6 +128.3 15.2 4.3 +252.3 13.1 116% JV/asso contribution 60.0 51.0 +17.7 58.6 +2.3 118.6 101.0 +17.4 121.0 98% Net finance income 5.7 9.8 -42.2 9.0 -37.0 14.7 20.0 -26.5 19.7 75% Net Profit 70.8 37.8 +87.5 68.8 +3.0 139.6 97.1 +43.8 143.8 97% Core net profit 70.5 64.7 +8.9 70.4 +0.1 140.8 123.1 +14.4 145.4 97% Margins (%) Core EBIT: 1.6 (FY25), 0.9 (FY24) – +0.7ppt change [[2]] Core net profit: 10.5 (FY25), 11.2 (FY24) – -0.6ppt change [[2]] Key Observations from Results FY25 core earnings slightly missed expectations due to lower-than-expected interest income. [[3]] Headline net profit increased by 43.8% yoy to S\$139.6m, impacted by a one-off write-off last year. [[3]] Excluding one-offs, FY25 core net profit was S\$140.8m (+14.4% yoy), 97% of the full-year forecast. [[3]] Core financial metrics like core EBIT (S\$15.2m, +252.3% yoy) and JV/associate contributions (S\$118.6m, +17.4% yoy) were largely in line. [[3]] Gestation costs from capacity expansion in FY25 affected core metrics. [[3]] Final dividend of 7 S cents was declared, up by 1 S cent yoy, but below the projected 8.5 S cents. [[3]] FY25 full-year dividend stands at 9 S cents (FY24: 8 S cents), with a payout ratio of 73% and FY25 yield of 3.9% based on current price. [[3]] Key Financials Forecast Year to 31 Mar (S\$m) 2024 2025 2026F 2027F 2028F Net turnover 1,094 1,245 1,312 1,372 1,434 EBITDA 65 78 96 110 122 Operating profit 2 15 28 39 49 Net profit (rep./act.) 97 140 152 165 176 EPS (S\$ cent) 8.6 12.4 13.6 14.7 15.7 PE (x) 27.0 18.7 17.1 15.8 14.8 P/B (x) 1.5 1.5 1.5 1.4 1.4 EV/EBITDA (x) 19.8 16.5 13.4 11.8 10.6 Dividend yield (%) 3.4 3.9 4.5 4.7 5.0 Net margin (%) 8.9 11.2 11.6 12.0 12.3 Net debt/(cash) to equity (%) (37.6) (37.8) (31.1) (30.8) (30.7) ROE (%) 5.8 8.2 8.7 9.2 9.6 Consensus net profit – – 158 168 – UOBKH/Consensus (x) – – 0.96 0.98 – Strong Net Cash Position Net cash position stood at S\$659m as of end-FY25 (end-FY24: S\$641m). [[3]] Equivalent to 25% of SIAEC’s current market cap. [[3]] Stock Impact Analysis Flight activities at Changi Airport are close to a full recovery. [[4]] Flight activities improved in 4QFY25, up 5.2% yoy, reaching 98.8% of pre-pandemic levels. [[4]] Expect flight volume to return to an organic natural growth rate of low single-digit percentage moving forward. [[4]] SIAEC has gained market share of the Changi Airport line maintenance business volume against competitors during the pandemic, reaching 84.9% in FY25, compared to less than 80% before the pandemic. [[4]] MRO Demand and Supply Chain Strong MRO demand is underpinned by healthy air travel growth. [[4]] Limited impact from higher tariffs on SIAEC’s business. [[4]] Supply chain issues remain a challenge, potentially hindering project deliveries. [[4]] SIAEC will continue to mitigate supply chain disruptions with module replacements and capacity optimization. [[4]] Proactive Investments for Growth SIAEC is proactively investing to expand its geographical presence, capacity, and engineering capabilities. [[4, 5]] Opening new line maintenance stations in Indonesia, Japan, and Cambodia. [[5]] Ramping up MRO capacities through new facilities in Malaysia (the first of the two hangars in Subang is expected to be operational in 2H25). [[5]] Key engine joint ventures SAESL and ESA are boosting capabilities to support next-gen engines. [[5]] Gestation Costs Planned capacity expansion and investment in IT infrastructure will continue to incur gestation costs in the next 1-2 years (impacts felt in FY25). [[5]] Contract Renewal with Singapore Airlines Contract with Singapore Airlines is due for renewal from Apr 25. [[5]] The new contract should allow SIAEC to at least pass through some of its cost pressure. [[5]] SIAEC Group Strategy Earnings Revision/Risk FY26/27 earnings projection tweaked lower by 3.5%/2.0% to S\$152m/S\$165m to reflect slightly higher gestation costs related to business expansion. [[5]] Key risks: Margin pressure from labor and raw material cost inflation, and delay in project deliveries due to prolonged supply chain issues. [[5]] Valuation/Recommendation Maintain BUY rating and target price of S\$2.70. [[5]] SIAEC currently trades at 17.1x/15.8x FY26F/27F PE (12.7x/11.8x if ex-net-cash). [[5]] Offers 4.5%/4.7% dividend yields in FY26/27, respectively. [[5]] Quarterly Earnings Trend Flight Activities at Changi Airport Number of Flights Handled at Changi Airport Base Maintenance Business Volume Profit & Loss Forecast (S\$m) Year to 31 Mar 2025 2026F 2027F 2028F Net turnover 1,245.1 1,312.5 1,371.8 1,433.8 EBITDA 78.3 96.5 109.7 121.9 Deprec. & amort. 63.7 68.4 70.8 73.2 EBIT 14.6 28.1 39.0 48.6 Total other non-operating income (0.6) 0.0 0.0 0.0 Associate contributions 118.6 123.3 126.9 130.6 Net interest income/(expense) 14.7 12.9 13.1 13.1 Pre-tax profit 147.3 164.2 179.0 192.3 Tax (5.7) (8.2) (10.4) (12.3) Minorities (2.0) (3.8) (3.9) (4.0) Net profit 139.6 152.2 164.6 176.0 Balance Sheet Forecast (S\$m) Year to 31 Mar 2025 2026F 2027F 2028F Fixed assets 287.0 304.2 319.9 334.0 Other LT assets 884.1 904.1 924.6 945.7 Cash/ST investment 663.4 555.7 565.3 581.9 Other current assets 306.9 433.0 446.4 460.9 Total assets 2,141.4 2,197.0 2,256.2 2,322.5 ST debt 23.6 22.1 22.1 22.1 Other current liabilities 313.7 329.7 337.8 347.1 LT debt 61.6 58.4 58.4 58.4 Other LT liabilities 1.0 1.0 1.0 1.0 Shareholders’ equity 1,720.4 1,760.8 1,808.1 1,861.1 Minority interest 21.1 24.9 28.9 32.9 Total liabilities & equity 2,141.4 2,197.0 2,256.2 2,322.5 Cash Flow Forecast (S\$m) Year to 31 Mar 2025 2026F 2027F 2028F Operating 167.0 (21.8) 94.0 104.3 Pre-tax profit 147.3 164.2 179.0 192.3 Tax (1.7) (8.2) (10.4) (12.3) Deprec. & amort. 63.7 68.4 70.8 73.2 Associates (44.0) (48.7) (48.6) (48.4) Working capital changes 84.8 (110.1) (5.4) (5.2) Non-cash items 5.6 0.0 (0.0) 0.0 Other operating cashflows (88.7) (87.5) (91.4) (95.3) Investing (14.8) 63.3 66.4 69.5 Capex (maintenance) (64.4) (57.5) (57.5) (57.5) Investments (10.6) 0.0 0.0 0.0 Proceeds from sale of assets 0.1 0.0 0.0 0.0 Others 60.1 120.8 123.9 127.0 Financing (134.7) (149.2) (150.7) (157.2) Dividend payments (89.8) (111.8) (117.4) (123.0) Proceeds from borrowings 1.6 0.0 0.0 0.0 Loan repayment (2.0) (4.7) 0.0 0.0 Others/interest paid (44.5) (32.7) (33.4) (34.3) Net cash inflow (outflow) 17.5 (107.7) 9.6 16.6 Beginning cash & cash equivalent 646.0 663.4 555.7 565.3 Changes due to forex impact (0.1) 0.0 0.0 0.0 Ending cash & cash equivalent 663.4 555.7 565.3 581.9 Key Metrics Forecast (%) Year to 31 Mar 2025 2026F 2027F 2028F EBITDA margin 6.3 7.4 8.0 8.5 Pre-tax margin 11.8 12.5 13.0 13.4 Net margin 11.2 11.6 12.0 12.3 ROA 6.6 7.0 7.4 7.7 ROE 8.2 8.7 9.2 9.6 Turnover 13.8 5.4 4.5 4.5 EBITDA 19.7 23.2 13.8 11.1 Pre-tax profit 48.3 11.5 9.0 7.5 Net profit 43.8 9.0 8.2 6.9 EPS 44.2 9.3 8.2 6.9 Debt to total capital 4.7 4.3 4.2 4.1 Debt to equity 4.9 4.5 4.4 4.3 Net debt/(cash) to equity (37.8) (31.1) (30.8) (30.7)
