In the 1QFY2026 ended June, the company reported a net profit of $42.9 million, up 29% q-o-q, thanks to a strong 36% q-o-q rise in share of associate and joint-venture (JV) profits as the latter’s engine and component maintenance businesses did well.
On the other hand, Yap notes that operating profit in the period “fell slightly” q-o-q from $6.4 million in the 4QFY2025 to $5.1 million in the 1QFY2026.
He believes this was most likely due to start-up costs incurred by SIAEC on its various overseas expansion initiatives, which include the launching operations of two base maintenance hangars in Subang, Malaysia by end-2025 and a new component maintenance facility in Shah Alam, Malaysia. Yap expects both to be operational this year.
He notes that these start-up costs “probably offset” any benefits accruing to the company from new two-year base and line maintenance contracts with Singapore Airlines (SIA) and Scoot, which came into effect on April 1.
“We expect these new contracts to increase SIAEC’s manpower charge-out rates relative to the previous contract signed on April 1, 2023, allowing SIAEC to catch up on labour costs that had risen faster than expected during FY2024 to FY2025,” writes the analyst.
Overall, Yap sees that while the near- and medium-term outlook for the company is positive, the start-up and gestation costs of growth initiatives could slow down earnings growth in the FY2026 to FY2027.
He writes: “On the positive side, we expect benefits from the new contracts with the SIA group to become more evident in the results of future quarters. This is because part of the increase in labour charge-out rates to the SIA group is contingent on SIAEC achieving certain performance metrics for the year.”
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Yap believes SIAEC would “probably” be conservative in the 1HFY2026 and likely only accrue income at full labour rates in 2HFY2026 once the company is “more confident” of being able to achieve the required performance metrics set by its parent, SIA group.
Conversely, he expects start-up costs and gestation losses for the company’s new facilities to increase in the coming quarters as progress is made towards full operability of its new facilities in Malaysia and its new line maintenance JV in Cambodia.
The new line maintenance JV in Cambodia is expected to commence operations in the second half of 2025 while SIAEC’s other JV, Singapore Aero Engine Services Private Limited (SAESL), is undergoing a facility expansion at its sites in Singapore, which is intended to raise its engine shop capacity from over 300 engines to around 400 engines per annum (p.a.).
Potential de-rating catalysts noted by Yap include the possibility of rising startup and gestation losses in future quarters, while upside risks include possible surprise earnings uplift should SIAEC achieve the required performance metrics.
As at 1:57pm, shares in SIAEC are trading three cents higher or 0.92% up at $3.30.
