SIA Engineering Company Ltd (SIE SP): Leading the Way in Aircraft Maintenance

Recommendation: BUY (Maintained)

Target Price: S\$2.70

Upside Potential: +15.0%

Current Share Price: S\$2.35

Company Overview

SIA Engineering Company Ltd (SIAEC) is Asia’s premier provider of aircraft maintenance, repair, and overhaul (MRO) services. Recognized as the winner of the MRO Asia-Pacific Awards 2024 by Aviation Week, SIAEC continues to lead the industry with its innovative aftermarket services and marketing strategies.

Key Financial Highlights

SIAEC reported a solid performance for 3QFY25, with a net profit of S\$38.2 million, marking a quarter-on-quarter (qoq) increase of 7.4% and a year-on-year (yoy) rise of 42.0%. The company’s 9MFY25 net profit reached S\$107.0 million, achieving 74.4% of the full-year target. Revenue for the quarter stood at S\$324.8 million (+11.3% yoy, +5.6% qoq), supported by strong growth in its line maintenance business at Changi Airport.

Performance Metrics

• Revenue: S\$324.8 million (11.3% yoy growth)
• Operating Profit: S\$4.7 million, up from S\$2.4 million in 2QFY25
• Net Profit Margin: Improved to 11.8%, up by 2.5 percentage points yoy
• JVs and Associates Contributions: S\$90.8 million for 9MFY25 (+23.0% yoy)

Key Drivers of Performance

SIAEC’s strong performance can be attributed to the following factors:

• Recovery in Flight Activities: Changi Airport’s flight activities reached 99.6% of pre-pandemic levels in December 2024, with SIAEC’s line maintenance business volume exceeding pre-pandemic levels.
• Resilient Joint Ventures: The company’s JVs and associates contributed significantly to its earnings, particularly in the engine and component, airframe, and line maintenance segments.
• Operational Improvements: Despite supply chain challenges, SIAEC has maintained a steady pace of earnings growth and improved its operating profit sequentially.

Challenges and Risks

While SIAEC has demonstrated commendable growth, it faces significant challenges:

• Supply Chain Disruptions: Shortages in spare parts and delayed project deliveries continue to impact the global aviation sector.
• Cost Pressures: Rising labor and raw material costs pose risks to margins.
• Expansion Costs: Ongoing investments in new projects, such as the potential line maintenance business in Xiamen, may weigh on short-term financial performance.

Future Growth and Business Expansion Initiatives

SIAEC is actively pursuing strategies to expand its capacity and geographical reach:

• Digitalization: The company is redesigning MRO processes to improve inventory and spare parts management.
• New Ventures: Plans to invest in a line maintenance and ground service business in Xiamen in collaboration with a local partner.
• Capacity Expansion: Multiple ongoing projects to enhance capabilities and meet growing demand.

Valuation and Recommendation

SIAEC remains a compelling investment opportunity with a target price of S\$2.70, reflecting an upside potential of 15.0%. The stock currently trades at 16.8x FY26F PE, which is 1.7 standard deviations below its pre-pandemic historical mean of 23.2x. Additionally, the company offers attractive dividend yields of 4.5% for FY25 and 4.9% for FY26.

Key Catalysts

• Continued recovery in earnings post-pandemic
• Potential earnings-accretive investments
• Proactive share buybacks to support stock price

Financial Projections

Looking ahead, SIAEC is expected to maintain its growth trajectory:

• Net Turnover: Projected to grow from S\$1,094 million in FY24 to S\$1,305 million in FY27
• Net Profit: Expected to rise from S\$144 million in FY25 to S\$168 million in FY27
• Dividend Yield: Increasing from 4.5% in FY25 to 5.3% in FY27
• ROE: Improving from 8.4% in FY25 to 9.4% in FY27

Conclusion

With its robust recovery, strategic expansion initiatives, and attractive valuation, SIA Engineering Company Ltd remains a strong investment choice for those seeking exposure to the aviation sector. Despite supply chain challenges and rising costs, the company’s focus on innovation and operational efficiency positions it well for sustained growth in the coming years.