CGS International

May 14, 2025

SIA Engineering: Building Capacity for Long-Term Growth

Key Takeaways from SIA Engineering’s FY3/25 Performance

• FY3/25 core net profit reached S\$140.2m, slightly below forecast due to interest income and tax deviations [[1]].
• Underlying operating profit and share of profits from associates and JVs met or exceeded expectations for FY25 [[1]].
• “Add” rating reiterated with an increased end-CY25F Target Price (TP) of S\$2.70, based on a CY26F P/E of 19.5x [[1]].

Stronger FY25 Driven by Post-COVID-19 Recovery

• 2HFY25 core net profit increased by 17.8% yoy to S\$71m, driven by higher line maintenance volumes and increased heavy base maintenance checks for SIA’s A380 fleet [[1]].
• Losses narrowed in the engine and component businesses due to more engine inductions, while share of associate and JV profits rose due to higher work volumes [[1]].
• FY25 core net profit increased by 17.4% yoy to S\$140m, with a final DPS of 7 Scts, bringing the total DPS to 9 Scts (payout ratio of 72%) [[1]].
• Dividend payouts were accelerated to compensate for non-payment during FY21-22 [[1]].

Rationale for the “Add” Rating on SIE

• Renewal of line and base maintenance contracts with parent company SIA from April 1, 2025, is a potential share price catalyst [[1]].
• Assumed uplift in pricing to account for cost escalation since the last contract signing [[1]].
• SIA accounted for 78% of SIE’s company-level revenue, and an estimated 20% of revenue for SIE’s associate and JV companies [[1]].

Downside Risks and Overseas Ventures

• Set-up costs for upcoming ventures overseas pose downside risks [[1]].
• New line maintenance business in Cambodia to be operational from July 2025F [[1]].
• Additional base maintenance hangar capacity in Subang by 2HCY25F and facilities with Air India in Bangalore by CY26F [[1]].
• New outfit at Shah Alam intended to be partially operational this year, with SAESL JV starting a 2-year capacity expansion project from Jan 2025 [[1]].
• Manpower and training costs will be expensed into the P&L, continuing for 1-2 years into the ramp-up period [[1]].

Long-Term Growth Prospects and Efficiency Measures

• Ventures are building blocks for long-term growth given strong demand for MRO services [[1]].
• Progressive rollout of an Enterprise Operating System (EOS) to enhance efficiency in Singapore hangars [[1]].
• Stable staff costs expected, with subcontract costs remaining fixed for FY26-27F [[1]].

Key Changes in Earnings Forecasts

• FY26-27F core EPS forecasts reduced by 2-7% due to set-up costs for new ventures overseas [[1]].
• FY28F core EPS forecast introduced [[1]].

Stock Information

• Current Price: S\$2.32 [[1]]
• Target Price: S\$2.70 [[1]]
• Reuters: SIAE.SI [[1]]
• Bloomberg: SIE SP [[1]]
• Market Cap: US\$1,988m / S\$2,593m [[1]]
• Average Daily Turnover: US\$0.91m / S\$1.21m [[1]]
• Current Shares O/S: 1,122m [[1]]
• Free Float: 22.4% [[1]]

Major Shareholders

• Singapore Airlines: 77.6% [[1]]

Price Performance

• 1 Month: 14.3% (Absolute), 1.9% (Relative) [[1]]
• 3 Months: -1.3% (Absolute), -1.6% (Relative) [[1]]
• 12 Months: -0.4% (Absolute), -30.3% (Relative) [[1]]

Financial Summary

Results Comparison

• 2HFY25 Revenue: Higher hoh due to increased line maintenance volume and higher unit revenue per airframe check [[2]].
• 2HFY25 EBITDA Margin: Rose hoh as operating costs did not increase as much as revenue [[2]].
• FY25 EBIT: Increased yoy as losses at the engine & component business narrowed, offset by lower profits at the airframe overhaul & line maintenance segment [[2]].
• 2HFY25 Share of Associates and JVs: Slightly higher hoh, rose 18% yoy due to better performance by ESA, SAESL, etc [[2]].
• 2HFY25 Effective Tax Rate: Rose hoh [[2]].
• 2HFY25 Net Profit: Slightly higher hoh, with higher EBIT and share of associates and JVs consumed by higher taxes [[2]].
• 2HFY25 Core Net Profit: Rose yoy due to stronger EBIT and higher share of associates and JVs [[2]].
• 4QFY25 Revenue: Rose qoq due to higher engine & component revenue [[2]].
• 4QFY25 EBIT Margin: Rose qoq due to higher volume of heavy checks [[2]].
• Share of Associates and JVs: QoQ fall due to lower profits from SAESL [[2]].
• 4QFY25 Net Profit: Fell qoq due to lower share of associate and JV profits [[2]].

Operating Metrics

• Airframe Overhaul and Line Maintenance: Revenue rose hoh and yoy despite a fall in airframe checks, as SIE performed heavier checks with higher revenues per check [[3]].
• Engine & Component; Fleet Management: Revenue rose hoh and yoy due to higher work volumes [[3]].
• Airframe Overhaul and Line Maintenance EBIT: Fell in FY25 due to new ventures in Cambodia (TIA), Malaysia (BMM), higher training costs in Singapore, and IT-related project costs [[3]].
• Engine & Component; Fleet Management EBIT Loss: Narrowed yoy as SIE work volumes increased with higher efficiency [[3]].
• Airframe Checks at SG: Lower volume of airframe checks [[3]].
• Light Checks: Declined due to changes in aircraft utilization of third-party airlines [[3]].
• Heavy Checks: Fewer heavy checks yoy due to longer time taken to service SIA’s A380s and other legacy aircrafts [[3]].
• Line Maintenance at Changi Airport: Flights rose due to higher capacity deployment by airlines at Changi Airport [[3]].
• SIAEC Market Share: Approximately 85% at Changi Airport [[3]].
• Fleet Management: Stable number of aircraft under fleet management [[3]].

Cost Metrics

• Material Costs: Rose sharply due to higher work volume and inflation, but fully passed through to customers [[4]].
• Staff Costs: Rose at a slower pace as staff availability improved and attrition rate normalized [[4]].
• Subcontract Costs: Rose sharply as a new and higher rate 3-year agreement took effect in FY25 [[4]].
• Other Operating Expenses: Rose modestly as SIE trimmed support costs [[4]].

Additional Insights

• Light Checks in Singapore: [[4]]
• Heavy Checks in Singapore: [[4]]
• SIE Market Share at Changi Airport: [[4]]

Other Companies Mentioned

• Eagle Services Asia Private Limited (Not listed) [[7]]
• Singapore Aero Engine Services Private Limited (SAESL, Not listed) [[7]]
• Air India (Not listed) [[7]]

ESG Analysis

• SIA Engineering has steadily improved its ESG standing, with an overall ESG score improving from C in FY18 to B- in FY23 [[7]].
• The current score of B- is split into Environment: A (29.1%), Social: B- (42.7%), and Governance: C- (28.2%) [[7]].
• The group is expected to continue improving its ESG standing as it strives towards its long-term 2030 carbon emissions target [[7]].

Key ESG Highlights

• Workplace Safety: SIE was fined S\$230k in FY18 over a workplace safety lapse. The group has since improved its safety measures, with a decline in the reportable accident rate [[7]].
• Environmental Performance: SIE improved its Environmental score to A in FY23 from C in FY18, attributable to the installation of solar photovoltaic systems and setting a long-term target for carbon emissions reduction [[7]].
• Social Initiatives: SIE has introduced various initiatives to promote safe workplace behavior, launched a Lean Academy for re-skilling and upskilling, and formed a diversity task force [[7]].

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