According to SIAEC, the agreements are expected to yield a total labour revenue of $1.3 billion over two years and are “material” to its business.
Based on SIAEC’s labour revenue estimate, CGSI analyst Raymond Yap notes that the new contract terms mean SIAEC’s annual chargeable manhours to SIA will increase by 55% to $650 million per year for FY2026 to FY2027 from the previous contract.
In April 2023, SIAEC signed a similar agreement of two years with a one-year option with SIA that was worth $1.14 billion in total labour revenue for the full three years. SIAEC also signed a separate 2+1 year agreement with Scoot worth $120.8 million in total labour revenue for the three years, putting the absolute annual chargable manhours at $420 million per year.
“Assuming a 10% volume increase, it implies a 41% increase in manpower charge-out rates. Our forecast for SIA group’s available seat kilometre (ASK) passenger capacity for FY2026 - FY2027 is 10% higher than the actual ASK capacity for FY2024 - FY2025. We use this as a proxy for the increase in the volume of line and base maintenance work to be performed by SIAEC for SIA and Scoot,” Yap writes in his May 21 report.
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With this, the analyst believes SIAEC’s FY2026 core earnings per share (EPS) will grow by 35% to $206 million from his current forecast of $153 million. While Yap has not made any changes to his official estimates for FY2026 to FY2028, he believes SIAEC’s net growth will be limited to 15%, assuming that the group’s annual setup costs amount to 5% of what it had incurred for its staff costs in FY2025, or $30 million per year.
“Deducting this assumed $30 million incremental set-up costs from the pro forma FY2026 core net profit of $206 million will result in a net of $176 million, which is a 15% enhancement compared to our current forecast of $153 million,” the analyst writes.
To this end, Yap has kept his “add” call with a higher target price of $3.10 from $2.70 previously. His target price is still based on SIAEC’s calendar year (CY) 2026 P/E of 19.5 times - its mean since 2006 - against the group’s pro forma enhanced earnings.
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Noting that shares in SIAEC rose by 4.5% on May 21, a day after the announcement, the analyst believes the group will still see a rerating in its shares with its 1QFY2026 results released in mid-August as a potential catalyst. The contribution from SIAEC’s new contract should be apparent then, he says.
The DBS team has kept its “buy” call on SIAEC with an unchanged target price of $2.80 as they see the new contract anchoring the group’s margin recovery ahead.
“[The] run-rate [of $650 million] handily surpasses historical averages, marking a new high for SIAEC,” says DBS in a May 21 note, adding that this was the first time SIAEC explicitly stated that the new agreement is expected to have a material impact on its business.
Between FY2010 and FY2015, the team notes that SIAEC’s contracts with the SIA Group averaged a run-rate of $572 million per year before moderating to $448 million per year between FY2015 to FY2019.
To the team, the higher labour revenue in this contract is unlikely to be driven by fleet alone since SIA’s fleet grew by just 10 aircraft, or 5.1% higher between March 2023 and 2025.
“Instead, we believe it reflects a deliberate recalibration of internal labour rates, broader service scope, and potential reclassification of bundled offerings,” says DBS. “Strategically, this reset supports SIAEC’s ongoing shift toward margin recovery and signals greater commercial discipline in intra-group contracting.”
As this is the first “major repricing” after the full recovery of the global airline sector, the new terms reflects an improved bargaining power for maintenance, repair and operations (MRO) operators.
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“We believe this reset enhances earnings visibility and could lift SIAEC’s operating margins into the mid-to-high-single-digit range (vs low-single-digit currently) over the next few years, bringing them closer to peer levels,” says DBS.
While DBS previously factored in a pricing hike for SIAEC’s FY2026 results, DBS says it sees “positive surprises” to the group’s top line and operating margins following the contract announcement.
DBS analyst Jason Sum, on May 15, upgraded SIAEC to “buy” from “hold” with a higher target price of $2.80 from $2.50 at the time, as he anticipated SIA’s contract repricing to be a re-rating catalyst.
DBS currently expects SIAEC’s operating margins to reach 2.8% in FY2026 and 4.1% in FY2027.
“Consequently, every 1.0% beat to our margin estimates would lift net profits by 6.8%. Earnings and target price are under review pending more clarity from management,” says DBS.
As at 11.25am, shares in SIAEC are trading flat at $2.55.
