Sum had downgraded his call on SIAEC to “hold” on Jan 14 due to limited upside and “execution risks” in achieving profitability in its engine and components segment. Shares in SIAEC closed at $3.64 on Jan 14, compared to its last-traded price of $3.13 as at Sum’s latest report dated April 30.
In his report, the analyst highlights several factors in SIAEC’s favour including its edge in technology and strong captive business thanks to its link with Singapore Airlines (SIA). The airline contributes about 70% - 80% to the group’s top line. The maintenance cycle of SIA’s fleet “strongly impacts” SIAEC’s core business, notes Sum.
“SIA's strategy to maintain a young, technologically advanced fleet of airplanes provides SIAEC with opportunities to gain expertise in maintaining new aircraft types and win third-party maintenance contracts,” he adds.
SIAEC is also likely to enjoy long-term demand growth from its maintenance, repair and operations (MRO) business given its partnerships with leading original equipment manufacturers (OEMs) such as GE, Rolls-Royce and P&W.
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Over the next two years, the analyst estimates the group’s core net profit to see a compound annual growth rate (CAGR) of 13%, due mainly to new engine and component capabilities. The growth is also likely to come from the ramp-up of SIAEC’s Subang base maintenance from 4QFY2025, as well as new MRO and line maintenance joint ventures (JVs) in Cambodia and Malaysia.
In addition, Sum believes the group should see improved momentum as IT and gestation costs taper; its engine and components segment turning profitable; as well as expanded capacity at Singapore Aero Engine Services Pte Ltd (SAESL)
“Near-term operating indicators remain supportive, with steady traffic growth at Changi and continued strength in engine aftermarket,” says the analyst.
Finally, SIAEC, which has $485 million net cash and enjoys “solid” cash generation, has the flexibility to either enhance shareholder returns, pursue selective mergers and acquisitions (M&As) and deepen its collaboration with Air India as it scales its in-house MRO capabilities.
Despite the upgrade, Sum has lowered his target price to $3.80 from $4, based on a lower P/E multiple of 21 times from 24 times previously. The lowered P/E peg reflects a sector-wide multiple compression, he says.
For FY2026 ended March 31, Sum estimates SIAEC’s revenue and net profit to come in at $1.48 billion and $172.6 million respectively. The group will announce its full-year results after trading hours on May 11.
Shares in SIAEC closed 16 cents higher or 5.1% up at $3.30 on May 4.
