DBS Group Research upgrades SIA Engineering to a buy on ‘compelling growth,' raises target price

[SINGAPORE] DBS Group Research upgraded SIA Engineering's (SIAEC) stock to a 'buy' from a 'hold', citing limited exposure to tariff-related factors, growth ahead, among other factors.
The group's price target was increased to S$2.80 from S$2.50.
'(The upgrade reflects) SIA contract repricing upside, compelling growth narrative, and limited exposure to trade-related disruptions,' the research house said its note on Thursday (May 15).
Given its parent company's strategy to maintain a young, technologically advanced fleet of airplanes, SIAEC is usually quick to gain expertise in maintaining new aircraft types and can win third-party business relating to these new age aircraft, DBS Group Research noted.
It has the 'technology edge and strong captive business volumes owing to SIA parentage; (and is) well-positioned for long-term MRO (maintenance, repair and operations) demand growth, given its established partnerships with leading OEMs (original equipment manufacturers)', analyst Jason Sum wrote.
The group's strategic partnerships with leading OEMs such as Safran and Rolls-Royce position it favourably for long-term growth in services, the note added.
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For the full financial year 2024/25, SIAEC's net profit grew 43.8 per cent to S$139.6 million. It said the increase was supported by stable growth in the demand for aircraft MRO.
The group's total revenue for the year increased by 13.8 per cent to S$1.2 billion, from S$1.1 billion.
While group expenditure also grew, it rose at a slower pace of 12.7 per cent, with the increase largely due to higher manpower costs and increased material consumption.
SIAEC is poised to capitalise on burgeoning air travel demand in the region, said Sum. In addition to its own operations in Singapore, Japan and the Philippines, SIAEC's broader network of associates and joint ventures is primarily concentrated in Asia, positioning the group's earnings for growth alongside the normalisation of traffic in the region.
Furthermore, the group's facilities are better suited to servicing widebody aircraft used for longer distance international flights.
Over the next few years, SIAEC has multiple levers in place to drive growth, including developing new engine capabilities and base maintenance operations in Subang this year, according to the note.
Additionally, the group was recently selected to be Air India's strategic MRO partner and is poised to capitalise on the promising long-term growth outlook of the Indian aviation market.
'This reflects our upward earnings revision and greater conviction in the group's trajectory toward stronger core operating performance,' said Sum.
'We also favour its relative insulation from tariff-related risks, which reinforces the quality of its earnings outlook,' he added.
SIAEC shares were trading at S$2.44 at 4 pm on Friday, up 1.3 per cent or S$0.03.

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