SIA Engineering (SIE SP): FY25 Earnings Miss, Growth Investments & BUY Recommendation

UOB Kay Hian Private Limited

Wednesday, 14 May 2025

SIA Engineering (SIE SP): Riding the Wave of Recovery and Investing in Future Growth

SIA Engineering Co Ltd (SIE SP), Asia’s leading service provider for aircraft maintenance, repair, and overhaul (MRO), has been recognized with the MRO Asia-Pacific Awards 2024 by Aviation Week for its aftermarket services and marketing campaign. With a BUY recommendation maintained, the stock is currently priced at S\$2.32, with a target price of S\$2.70, indicating an upside of +16.4%. [[1]]

Company Overview

• GICS sector: Industrials
• Bloomberg ticker: SIE SP
• Shares issued (m): 1,117.8
• Market cap (S\$m): 2,593.4
• Market cap (US\$m): 1,986.0
• 3-mth avg daily t’over (US\$m): 1.0

Stock Performance

• 52-week high/low: S\$2.45/S\$2.18
• 1 month: 14.3%
• 3 month: 0.4%
• 6 month: (4.9)%
• 1 year: 1.3%
• Year-to-date: (2.1)%

Major Shareholders: SIA holds a significant 77.5% stake. [[1]]

FY25 NAV/Share (S\$): 1.58

FY25 Net Cash/Share (S\$): 0.43

FY25 Earnings Analysis

SIA Engineering reported a FY25 net profit of S\$139.6m, marking a 43.8% year-over-year increase. However, this figure slightly missed expectations, achieving 97% of the full-year forecast. The shortfall was attributed to lower-than-projected interest income and higher tax expenses, although key operating metrics aligned with expectations, supported by robust demand. The company’s proactive investments in growth are expected to result in gestation costs in the near to medium term. A contract renewal with Singapore Airlines is anticipated to alleviate some margin pressure. [[1], [2]]

Detailed Financial Results

The following table summarizes SIA Engineering’s financial performance:

Key Observations from the Results

• Core Earnings Miss: FY25 core earnings fell slightly short due to lower-than-expected interest income.
• Headline Net Profit Increase: SIA Engineering’s headline net profit of S\$139.6m reflects a 43.8% yoy increase. Last year’s figures were impacted by a S\$25.1m write-off related to the Pratt & Whitney (P&W) PW1500G engine Risk-Revenue Sharing Programme exit. [[3]]
• Core Net Profit: Excluding one-offs, the core net profit was S\$140.8m (+14.4% yoy), 97% of the full-year forecast. This was impacted by lower interest income due to higher working capital needs and increased tax expenses. [[3]]
• Core Financial Metrics: Core EBIT (S\$15.2m, +252.3% yoy) and JV/associate contributions (S\$118.6m, +17.4% yoy) were largely in line. Gestation costs from capacity expansion in FY25 affected core metrics. [[3]]
• Final Dividend: A final dividend of 7 S cents was declared, up 1 S cent yoy but below the projected 8.5 S cents. The FY25 full-year dividend stands at 9 S cents (FY24: 8 S cents), resulting in a payout ratio of 73% and a FY25 yield of 3.9% based on the current price. [[3]]

Financial Performance Forecast

Key financial forecasts for the upcoming years are as follows:

Strong Net Cash Position

SIA Engineering boasts a robust net cash position of S\$659m as of end-FY25, which is about 25% of SIAEC’s current market capitalization. This provides a solid financial foundation for future investments and growth initiatives. [[2]]

Stock Impact Analysis

• Recovery of Flight Activities: Changi Airport’s flight activities are nearing full recovery, reaching 98.8% of pre-pandemic levels in 4QFY25, up 5.2% yoy. The flight volume is expected to return to a low single-digit organic growth rate. SIAEC has increased its market share in Changi Airport’s line maintenance business to 84.9% in FY25, up from less than 80% pre-pandemic. [[2]]
• Strong MRO Demand: The company benefits from strong MRO demand driven by healthy air travel growth. The impact of higher tariffs on SIAEC’s business is limited. Supply chain issues remain a challenge, with SIAEC mitigating disruptions through module replacements and capacity optimization. [[2]]
• Proactive Investments: SIAEC is expanding its geographical presence, capacity, and engineering capabilities. New line maintenance stations are opening in Indonesia, Japan, and Cambodia. MRO capacities are increasing through new facilities in Malaysia, with the first hangar in Subang expected to be operational in 2H25. Engine joint ventures like SAESL and ESA are enhancing capabilities to support next-generation engines. [[2]]
• Gestation Costs: Capacity expansion and investments in IT infrastructure are expected to incur gestation costs over the next 1-2 years, as seen in FY25. [[2]]
• Contract Renewal: The contract renewal with Singapore Airlines from April 25 may offset some margin pressure, with expectations that SIAEC will pass through some cost pressures. [[2]]

Earnings Revision and Risk Assessment

• Earnings Adjustments: FY26/27 earnings projections have been tweaked lower by 3.5%/2.0% to S\$152m/S\$165m, respectively, to account for slightly higher gestation costs related to business expansion. [[2]]
• Key Risks: Potential margin pressure from labor and raw material cost inflation, as well as project delivery delays due to supply chain issues. [[2]]

Valuation and Recommendation

The report maintains a BUY recommendation with a DCF-based target price of S\$2.70. SIAEC is trading at 17.1x/15.8x FY26F/27F PE (12.7x/11.8x if ex-net-cash), offering dividend yields of 4.5%/4.7% in FY26/27, respectively. [[2]]

Financial Tables

Profit & Loss Statement

Balance Sheet

Cash Flow Statement

Key Financial Metrics