DBS Group Research analyst Jason Sum is keeping his “buy” call on SIA Engineering (SIAEC) at an unchanged target price of $2.80, as he sees multiple tailwinds for the company.
In his April 1 report, Sum notes that 60% of SIAEC’s top-line is driven by its parent company, Singapore Airlines C6L (SIA), which has a strategy of refreshing aircraft through maintenance to maintain a capable fleet of aeroplanes.
Benefitting from this, SIAEC is usually the first in the region to benefit from the strategy, maintaining new aircraft types and winning third-party businesses for its skills.
Sum expands: “Moreover, the group's strategic partnerships with leading original equipment manufacturers (OEMs), such as General Electric, Safran, Rolls-Royce, and Pratt and Whitney (P&W), positions it favourably for long-term growth in maintenance, repair, and overhaul (MRO) services.”
Meanwhile, the analyst also points to the strength of SIAEC’s “broader network” of associates and joint ventures (JVs) in Asia, which positions the company for earnings growth in-line with the normalisation of traffic in the Asia-Pacific (APAC) region.
Sum also likes SIAEC’s acquisition of a 75% stake in SR Technics Malaysia, a leading APAC MRO provider.
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“Further, the potential lease of two hangars in Subang, Malaysia, will lead to the expansion of its regional base maintenance network,” adds the analyst.
Following this, Sum has kept his call at an undemanding valuation and a 32% earnings compound annual growth rate (CAGR) between FY22024 to FY2026.
He concludes: “We believe SIAEC’s promising growth prospects are not baked into its share price and see the current share price levels as an attractive entry point to ride on its earnings recovery story.”
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Key risks include a slower-than-expected resumption of international flights in Asia, and supply chain bottlenecks which could impede earnings growth.
As at 12.35 pm, shares in SIA Engineering are trading at two cents lower or 0.88% down at $2.25.
