CGS International Securities
July 23, 2025

SIA Engineering’s Stock Rally Pauses: Upgraded Earnings, But Valuation Stretched After 54% Surge

Introduction: SIA Engineering’s Soaring Share Price Prompts Downgrade

SIA Engineering (SIE), a key player in Singapore’s aviation maintenance, repair, and overhaul (MRO) sector, has seen a remarkable 54% share price rally in just three months. Following strong quarterly results and an upward revision to earnings forecasts, CGS International Securities now recommends taking profit, downgrading the stock from “Add” to “Reduce.” Despite a positive earnings outlook, current valuations fully reflect these gains, suggesting limited further upside in the near term.

1QFY26 Results: Strong JV and Associates’ Performance Drives Profits

SIA Engineering’s 1QFY26 (April–June 2025) net profit reached S\$42.9 million, up 29% quarter-on-quarter and ahead of expectations, representing 27.5% of the previous full-year forecast. This performance was underpinned primarily by a robust 36% quarter-on-quarter increase in profits from associates and joint ventures, especially in engine and component maintenance businesses.
However, SIE’s core operating profit (EBIT) dipped slightly to S$5.1 million from S$6.4 million in the previous quarter, attributed to start-up costs from overseas expansion initiatives, including:

• Launching a new base maintenance hangar in Subang, Malaysia, expected operational by end-CY25
• Opening a new component maintenance facility in Shah Alam, Malaysia within the year

These costs offset early benefits from new two-year base and line maintenance contracts with SIA and Scoot, which took effect on April 1, 2025. The revised contracts increased SIE’s manpower charge-out rates, helping the company catch up with the faster-than-expected rise in labor costs in FY24 and FY25.

Positive Medium-Term Earnings Outlook, But Risks Loom

SIE’s near-to-medium-term outlook remains positive, with the new SIA group contracts poised to deliver further upside. Notably, part of the labor rate increase is contingent on SIE meeting certain performance metrics, likely leading to conservative earnings recognition in 1H26, with full accruals expected in 2H26 upon achieving targets.
However, start-up and gestation losses from new facilities in Malaysia and Cambodia, as well as ongoing expansion at SAESL’s Singapore engine shops, could weigh on earnings in the next few quarters. The share price, now at S$3.35, has moved ahead of fundamentals, and a further rerating may require successful delivery on growth and capacity expansion plans.

Financial and Valuation Highlights

Key numbers as of July 23, 2025:

• Current Price: S\$3.35
• Target Price: S\$3.10
• Market Cap: S\$3.75 billion (US\$2.93 billion)
• Free Float: 22.4%
• Major Shareholder: Singapore Airlines (77.6%)
• Dividend Yield: 2.69%

Revised Core EPS Forecasts:

• FY26: +11%
• FY27: +15%
• FY28: +13%

The target price of S\$3.10 is based on a CY26F P/E of 19.5x, in line with the long-term mean valuation.

Financial Summary Table

Key Operational Metrics

• Airframe checks in Singapore, 1QFY26: 170 (light: 147, heavy: 23)
• Line maintenance at Changi Airport, 1QFY26: 39,458 flights handled
• Market share at Changi Airport: 85.4%
• Fleet management: 166 aircraft managed (down from 187 last year)

Sector Peer Comparison

ESG Performance and Workplace Safety

SIA Engineering has improved its ESG (Environmental, Social, Governance) standing, moving its LSEG ESG score from C in FY18 to B- in FY23, breaking down as:

• Environment: A (solar system installations, 20% reduction in non-renewable electricity use, carbon emissions target of 24.48% reduction by 2030 vs FY14)
• Social: B- (new training, Lean Academy, diversity initiatives, zero workplace fatalities in FY21–23)
• Governance: C- (steady performance, no major controversies)

Improvements in workplace safety have reduced reportable accident rates from 2.06 per million hours in FY18 to 1.62 in FY20. No work-related fatalities have occurred since FY21. The company has also introduced advanced workplace safety training and automated guided vehicles with enhanced safety features.

Balance Sheet and Key Financial Ratios

• Total cash and equivalents as of March 2025: S\$663 million
• Shareholders’ equity: S\$1,720 million
• Total liabilities: S\$400 million
• Net cash per share: S\$0.59
• BVPS: S\$1.53
• Operating EBITDA margin: 6.28% (2025A), rising to 8.32% (2028F)
• ROE: 8.2% (2025A), rising to 10.0% (2028F)

Key Risks and Upside Catalysts

Potential risks:

• Rising start-up and gestation losses from new facilities
• Possible derating if earnings momentum falters or costs rise faster than expected

Upside risks:

• Surprise earnings uplift if performance metrics are met early under the new SIA contract

Other Companies Mentioned: Business Updates

• Eagle Services Asia Private Limited: Not listed; JV performance contributed positively to SIE’s associate income.
• Singapore Aero Engine Services Private Limited (SAESL): Also not listed; ongoing expansion in Singapore to boost engine shop capacity from 300+ to around 400 engines per year.
• Air India and Scoot: Both are customers under the new SIE contract terms.

Conclusion: Take Profit—Valuation Fully Reflects Positive Outlook

SIA Engineering’s robust results and upgraded forecasts have driven a sharp share price rally. With the current price reflecting near-term upside, CGS International recommends taking profit. Future share price catalysts will depend on SIE’s ability to deliver on structural growth and expansion plans, while investors should watch for the impact of start-up costs and the pace of earnings recognition from new contracts.

Stock Ratings and Distribution

• Add: Expected return >10% over 12 months
• Hold: Expected return 0-10%
• Reduce: Expected return <0%

For the quarter ended June 30, 2025:

• Add: 70.6%
• Hold: 20.5%
• Reduce: 8.9%