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
| FYE Mar (S\$m) | Mar-24A | Mar-25A | Mar-26F | Mar-27F | Mar-28F |
|---|---|---|---|---|---|
| Revenue | 1,094 | 1,245 | 1,354 | 1,410 | 1,468 |
| Operating EBITDA | 65.4 | 78.2 | 99.9 | 108.4 | 117.2 |
| Net Profit | 98.9 | 139.6 | 152.8 | 160.1 | 168.9 |
| Core EPS (S\$) | 0.07 | 0.12 | 0.14 | 0.14 | 0.15 |
| Core EPS Growth | 9.2% | 81.5% | 10.0% | 4.7% | 5.5% |
| FD Core P/E (x) | 34.02 | 18.75 | 17.05 | 16.27 | 15.43 |
| DPS (S\$) | 0.080 | 0.090 | 0.090 | 0.090 | 0.090 |
| Dividend Yield | 3.45% | 3.88% | 3.88% | 3.88% | 3.88% |
| EV/EBITDA (x) | 22.82 | 18.30 | 14.14 | 12.59 | 11.16 |
| P/FCFE (x) | 19.46 | 17.17 | 32.47 | 24.87 | 23.35 |
| Net Gearing | (37.6%) | (37.8%) | (33.7%) | (31.1%) | (28.8%) |
| P/BV (x) | 1.54 | 1.51 | 1.47 | 1.42 | 1.37 |
| ROE | 4.57% | 8.16% | 8.75% | 8.88% | 9.05% |
| EPS/Consensus EPS (x) | 0.97 | 0.95 |
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]]
| FYE Mar (S\$ m) | Mar-24A | Mar-25A | Mar-26F | Mar-27F | Mar-28F |
|---|---|---|---|---|---|
| Revenue Growth | 37.5% | 13.8% | 8.7% | 4.1% | 4.1% |
| Operating EBITDA Growth | 73.6% | 19.6% | 27.7% | 8.5% | 8.1% |
| Operating EBITDA Margin | 5.98% | 6.28% | 7.38% | 7.69% | 7.98% |
| Net Cash Per Share (S\$) | 0.57 | 0.59 | 0.54 | 0.51 | 0.50 |
| BVPS (S\$) | 1.50 | 1.53 | 1.58 | 1.63 | 1.69 |
| Gross Interest Cover | 0.54 | 3.77 | 10.02 | 12.02 | 14.20 |
| Effective Tax Rate | 2.19% | 3.89% | 7.49% | 7.85% | 8.45% |
| Net Dividend Payout Ratio | 73.9% | 72.2% | 66.1% | 63.1% | 59.8% |
| Accounts Receivables Days | 17.57 | 19.32 | 17.34 | 17.89 | 17.94 |
| Inventory Days | 93.90 | 84.20 | 86.69 | 91.52 | 91.77 |
| Accounts Payables Days | 341.5 | 321.3 | 332.1 | 332.8 | 333.7 |
| ROIC (%) | 0.34% | 2.13% | 5.35% | 6.07% | 6.99% |
| ROCE (%) | 1.58% | 1.92% | 2.94% | 3.11% | 3.41% |
| Return On Average Assets | 3.89% | 6.02% | 6.60% | 6.81% | 6.96% |
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]].
Sector Comparisons
| Company | Bloomberg Ticker | Recom. | Price | Target Price | Market Cap (US\$ m) | Core P/E (x) CY25F | Core P/E (x) CY26F | 3-year EPS CAGR (%) | P/BV (x) CY25F | P/BV (x) CY26F | Recurring ROE (%) | EV/EBITDA (x) CY25F | Dividend Yield (%) CY26F |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| SIA Engineering | SIE SP | Add | S\$2.32 | S\$2.70 | 1,988 | 17.4 | 16.5 | 11.4% | 1.48 | 1.43 | 8.5% | 15.3 | 3.9% |
| Singapore Airlines | SIA SP | Hold | S\$6.84 | S\$6.00 | 15,582 | 16.0 | 19.6 | nm | 1.29 | 1.26 | 8.0% | 7.5 | 2.8% |
| SATS Ltd | SATS SP | Add | S\$2.97 | S\$3.05 | 3,384 | 18.3 | 16.0 | nm | 1.62 | 1.50 | 9.2% | 5.5 | 1.3% |
| Average | 16.4 | 18.6 | nm | 1.35 | 1.31 | 8.2% | 7.2 | 2.6% |
