SIA Engineering Company (SIAEC) announced its 3QFY2025 ended December 2024 business update, which saw a 42% y-o-y increase in net profit to $38.2 million, while revenue grew 11.3% y-o-y to $324.8 million.
Analysts have kept a rather positive stance since the results announcement.
UOB Kay Hian has reiterated its “buy” recommendation and $2.70 target price on SIAEC, as the 9MFY2025 earnings came in at 74.4% of its full-year forecasts.
“The company has managed a moderate pace of earnings improvement amid continued supply chain challenges, with its line maintenance business volume at Changi Airport having reached almost 100% of pre-pandemic levels,” says analyst Roy Chen, who believes that SIAEC offers decent FY2025/FY2026 yields of 4.5%/4.9%.
Flight activities at SIAEC’s home base Changi Airport continued to improve in 3QFY2025, reaching 99.6% of pre-pandemic levels in December 2024. As for SIAEC, the company disclosed that its line maintenance business volume at the Changi Airport had already exceeded pre-pandemic (December 2019) levels in December 2024.
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“We note that SIAEC’s share of the Changi Airport line maintenance business volume increased during the pandemic, averaging 85% in 9MFY2025, compared with about 80% before the pandemic,” says Chen.
Management sees healthy MRO demand. However, supply chain constraints, tight manpower supply and rising cost pressure remain drags for the sector. According to the International Air Transport Association, the supply chain issues are likely to persist in 2025. To tackle these challenges, management has pushed the digitalisation of operations with redesigned MRO processes to better manage inventory/spare parts for project deliveries.
Meanwhile, SIAEC continued to execute its strategy to expand capacity, capabilities and geographical reach. Apart from the expansion projects announced earlier, SIAEC announced in November 2024 that it is exploring to invest in a line maintenance and ground service business in Xiamen with a local partner.
“While we are positive on SIAEC’s business expansion initiatives, the associated start-up and development costs of these projects may somewhat drag SIAEC’s financial performance in the next two to three years,” says Chen.
On the other hand, OCBC Investment Research too has a “buy” call and lower fair value estimate on SIAEC of $2.64 from $2.76 previously.
“Notwithstanding manpower shortages and supply chain constraints that have placed upward pressure on costs, we remain constructive on the broader MRO industry and especially engine maintenance, as operational issues (particularly from next-generation engines) necessitate more inspections and/or (unplanned) visits to the shop,” says analyst Ada Lim.
Lim believes that SIAEC is well poised to capture robust MRO demand given its investments into capacity expansion and capability development, continued growth of its portfolio of partnerships, and exposure to the up-and-coming India market – though it may take some time for its efforts to bear fruit.
Management had shared that the broader MRO market continues to experience healthy demand despite struggling with manpower shortage and supply chain constraints, which resulted in upward pressure on cost. The group hence implemented its Enterprise Operating System progressively to strengthen its planning and operational resilience, allowing it to better address supply chain challenges.
“We raise our growth rate assumption for its share of profits from associated and JV companies,” adds Lim, who has also increased cost of equity from 7.9% to 8.2% on a higher risk-free rate to reflect a potentially shallower rate cut cycle and a marginally higher beta.
As at 10.10am, shares in SIAEC are trading at $2.39.
