OCBC Investment Research
29 May 2025

SIA Engineering Co Ltd: Soaring on Strong Contract Wins and Robust MRO Demand

Introduction: SIA Engineering’s Strategic Leap Forward

SIA Engineering Company Ltd (SIAEC), a global leader in maintenance, repair, and overhaul (MRO) services, has captured investor attention with a series of substantial contract wins and a bullish outlook for the aviation services sector. Amidst global supply chain challenges and evolving industry trends, SIAEC’s new agreements with Singapore Airlines (SIA) and Scoot mark a turning point, setting the stage for significant revenue growth and operational expansion.

Materially Positive Development: Major New Contracts

• SIAEC has secured new Comprehensive Services Agreements with SIA and Scoot, effective from 1 April 2025, for a two-year period with an option to extend for another year (2+1 structure).
• These contracts are expected to generate total labour revenue of SGD 1.3 billion over two years, representing a 54.7% step-up in annual revenue compared to previous agreements.
• Previous contracts commencing April 2023 were projected to yield SGD 1.14 billion (SIA) and SGD 120.8 million (Scoot) over three years.
• The announcement has triggered an 11.4% rally in SIAEC’s share price, closing at SGD 2.72 as of 28 May 2025.

Investment Thesis: Strong Position in a Growing MRO Market

SIAEC’s global footprint extends to more than 80 international airlines and aerospace equipment manufacturers. Despite workforce constraints and persistent supply chain bottlenecks, SIAEC is strategically placed to benefit from:

• Increasing demand for engine maintenance, particularly as next-generation engines require more frequent inspections and unplanned shop visits.
• Ongoing investments in capacity expansion and technical capability development.
• Diversification of its partnership portfolio and growing exposure to the Indian aviation market, though near-term uncertainty from “Liberation Day” tariffs may delay some benefits.

Financial Performance and Upgraded Outlook

OCBC Investment Research has raised its fair value estimate for SIAEC from SGD 2.64 to SGD 3.00, based on revised earnings forecasts reflecting the impact of new contracts. Key highlights include:

• FY25 and FY26 PATMI (Profit After Tax and Minority Interests) forecasts have been increased by 16.2% and 13.7%, respectively.
• FY25 revenue is estimated at SGD 1,245 million, rising to SGD 1,687 million in FY26E and SGD 1,771 million in FY27E.
• Dividend per share (DPS) is projected to climb from 9.0 cents in FY25 to 12.0 cents in FY27E.
• Return on Equity (ROE) is forecasted to improve from 8.2% in FY25 to 10.4% in FY27E.

Valuation Comparison: SIAEC and Peers

A comparison of valuation metrics against key industry players underscores SIAEC’s competitive positioning:

Company Overview: SIA Engineering Company at a Glance

SIAEC, listed on the Singapore Exchange since 2000, leverages a global network of joint ventures and subsidiaries to deliver a comprehensive suite of MRO services. Its Singapore hub comprises six hangars and 17 in-house workshops, with certifications from more than 20 airworthiness authorities. SIAEC also provides line maintenance at Changi Airport and at key airports in Hong Kong, Indonesia, Japan, the Philippines, the US, and Vietnam.

• Revenue Breakdown FY25:
• Airframe overhaul and line maintenance: 73.3%
• Engine and component services: 26.7%
• Geographical Revenue Distribution:
• East Asia: 70.4%
• Europe: 16.7%
• South West Pacific: 1.2%
• Americas: 4.7%
• West Asia & Africa: 7.0%

Profitability and Financial Highlights

• Gross profit rose to SGD 973.1 million in FY25 on revenue of SGD 1,245.1 million.
• Net profit increased to SGD 139.6 million in FY25, with a net income margin of 11.21%.
• Return on Common Equity reached 8.19% and Return on Assets improved to 6.70% in FY25.
• Dividend payout ratio stood at 72.56% in FY25, supporting a healthy sustainable growth rate of 8.13%.
• Strong credit profile, with Net Debt/Equity at -0.32 and Long-Term Debt/Total Assets at 2.88%.

ESG Ratings and Corporate Responsibility

SIAEC’s ESG rating was upgraded in October 2024, reflecting:

• Majority independent board, with 30% female representation.
• Fully independent audit committee.
• Strong safety record, with ISO45001 certification and ongoing hazards exposure monitoring.
• Robust business ethics, including whistleblowing protection and staff ethics training.
• Opportunities for improvement in environmental practices, particularly in biodiversity conservation.

Key Catalysts and Risks

Potential Catalysts:

• Accelerated fleet expansion by global airlines.
• Faster-than-anticipated easing of inflationary, raw material, and labour cost pressures.
• Stronger-than-expected recovery in contributions from associates and joint ventures.

Key Risks:

• Reduction in air travel, impacting MRO demand.
• Challenges in growing the talent pipeline amid a tight labour market and strong competition.
• Significant dependence on Singapore Airlines for maintenance contracts.
• Potential disruptions from “Liberation Day” tariffs and ongoing supply chain constraints.

Conclusion: SIA Engineering Set for Take-Off

With new, higher-value contracts, a strong balance sheet, and an improving ESG profile, SIA Engineering is well-positioned to capture rising demand in the global MRO sector. While headwinds remain, especially on the supply chain and macroeconomic front, the company’s strategic initiatives and robust financials support a positive outlook. OCBC Investment Research maintains a BUY rating with an upgraded fair value estimate of SGD 3.00, suggesting attractive upside for investors seeking exposure to aviation’s next growth phase.