According to Liu and Chew in their Sept 15 note, MRO upcycles are driven by first growing travel, ageing fleets, and delayed aircraft deliveries.
Upside will come from capacity expansion too, with SIAEC holding an 80% market share in Singapore’s line maintenance and 30% in engine MRO.
A significant chunk of SIAEC comes from parent company SIA, which in April 2025, signed a new contract worth $1.3 billion.
For the current FY2026 ending March 2026, the analysts expect SIAEC's patmi to rise 18.2% y-o-y to $165.7 million, driven by a 1ppt improvement in operating margin as the SIA contract was successfully repriced. Higher income from its joint ventures, driven by bigger capacities, will help too.
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In what can be seen as another positive attribute, SIAEC does not have a fixed dividend policy in place, but it has a track record of distributing more than 70% of its net profit since FY2023, after halting for two years due to the pandemic years of FY2021 and FY2022.
Driven by robust MRO demand and improving profitability, Liu and Chew expect the company to pay a dividend of 10 cents for this year, which means a yield of 3.2%.
The confidence over the dividend payout is further boosted by SIAEC's strong cash position of $674 million and a free cash flow (FCF) yield of 5.7%
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However, they have also flagged some risks.
For one, the company could only rely on a limited pool of OEMs and specialised parts manufacturers, amid uncertainties caused by US tariffs.
"This may lead to delays in check completion and negatively impact operating margins due to inflationary pressures," they warn.
As the company operates across many markets via its network of joint ventures, revenue is generated in different currencies and thereby exposing SIAEC to risks of unfavourable currency fluctuations.
The way Liu and Chew see it, there is also a "risk" that SIAEC will be privatised.
Parent company SIA, itself majority held by Temasek Holdings, could consider privatising SIAEC, given its 77% stake as the largest shareholder and deems it a "strategic asset".
Yet, as a listed company, SIAEC is subject to costs and scrutiny—including public reporting, investor relations, and market expectations—that SIA may prefer to avoid for a non-core subsidiary, suggest Liu and Chew.
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The analysts' target price of $3.83 is derived from a relative valuation approach, after applying a 25x FY2026 PE.
The valuation multiple is pegged at +1.1 sd above SIAEC's historical mean, reflecting its improving operating margins and robust outlook for MRO demand.
Liu and Chew point out that this multiple remains well below the industry average forward P/E of 36x and is further supported by a net cash position of 50 cents per share.
At current levels, SIAEC is trading at 21x FY2026 earnings and an EV/EBITDA of 29.8x.
SIA Engineering shares changed hands $3.18 as at 1.44 pm, up 1.6% thus far today and up 33.61% year to date.
