Analysts at CGS International (CGSI) and OCBC Investment Research (OIR) are both keeping their respective “add” and “buy” calls on SIA Engineering Company (SIAEC) after the company’s 1HFY2024 ended Sept 30 revenue rose by 12.1% y-o-y to $576.2 million. SIAEC’s earnings for the 1HFY2025 rose by 16% y-o-y to $68.8 million.
CGSI analysts Kenneth Tan and Lim Siew Khee see SIAEC as “well positioned” to capture the elevated regional demand for maintenance, repair and operations (MRO). At the same time, they believe the company’s fundamentals are “trending in the right direction”.
The company’s 1HFY2025 earnings stood in line with Tan’s and Lim’s expectations at 49% of their FY2025 forecast.
“1HFY2025 revenue growth of 12% y-o-y indicated that 2QFY2025 revenue reaccelerated despite a slow 1QFY2025, which management attributed to increased work volumes and timing of certain project milestones,” write Tan and Lim in their Nov 6 report.
SIAEC’s operating profit margin in the first half also improved y-o-y by 0.6 percentage points (ppts), although the analysts note that elevated labour and material costs continued to apply pressure.
Associate profits similarly recorded healthy growth of 17% y-o-y on stronger engine work volumes at key engine associates.
See also: UOBKH calls Centurion Corp a stock for ‘growth-minded investors’
As such, an interim dividend per share (DPS) of 2.0 cents was proposed.
In terms of operational numbers, flights handled by line maintenance in 1HFY2025 rose 9% y-o-y, standing at around 99% of 1HFY2020 pre-Covid-19 pandemic levels thanks to continued traffic recovery at Changi Airport.
Meanwhile, the number of checks performed by base maintenance declined 12% y-o-y, but work scope per check rose due to increased utilisation of older aircraft and some cabin refurbishment works.
See also: With 300MW wind-solar project win in India, Sembcorp at 64% of 2028 renewable energy goal: CGSI
Tan and Lim write: “We understand that SIAEC is currently in the process of renegotiating its maintenance, repair and operations (MRO) contract rates with parent Singapore Airlines C6L , and continues to focus on expanding longer-term growth avenues such as Subang base maintenance hangars, line maintenance services in Cambodia and collaboration with Air India.”
Both of SIAEC’s engine associates saw robust work volume recovery in the 1HFY2025.
The analysts write: “Eagle Services Asia (ESA) benefitted from a ramp-up in geared turbofan (GTF) engine recalls, and is still ramping up utilisation in view of recent facility expansion.”
On SIAEC’s other associate, Singapore Aero Engine Services (SAESL), the company saw strong profit growth of around 36% y-o-y, driven by both higher rates charged and increased output.
“SAESL is still undergoing expansion works to boost capacity by around 40%, set to conclude by FY2026/FY2027. Associate profits remain a key earnings driver for SIAEC, we estimate them to account for around 80% of SIAEC’s FY2025 to FY2027 net profit,” write Tan and Lim.
At the same time, SIAEC’s 1HFY2025 operating profit came in slightly under OIR’s initial full-year forecast at 45.6%. 1HFY2025 revenue stood at 46.9% of the brokerage’s full-year estimate.
“We also note that SIAEC has incurred start-up and development costs and is expected to continue to do so over the next two to three years as it continues to invest in capacity expansion and productivity, though these figures have not been separately disclosed,” says OIR analyst Ada Lim in her Nov 6 report.
For more stories about where money flows, click here for Capital Section
She notes that the company’s group revenue and expenditure rose 12.1% and 11.5% y-o-y to $576.2 million and $572.8 million respectively, translating to a $3.3 million y-o-y increase in operating profit to $3.4 million.
In the same period, SIAEC’s share of earnings of associates/joint ventures (SoAJV) grew 17.2% y-o-y to $58.6 million.
Lim concludes: “SIAEC performed 347 and 33 light and heavy checks, respectively, at its Singapore base in 1HFY2025; this was slightly lower y-o-y as there were more checks for older generation aircraft with heavier work content that resulted in longer hangar time, as well as cabin refurbishments.”
CGSI has an unchanged target price of $2.65 while OIR has raised its fair value of $2.76 from $2.69 previously.
As at 2.47 pm, shares in SIAEC are trading 1 cent higher or 0.41% up at $2.46.
