SIA Engineering: BUY with Target Price of S$3.77 as SAESL Drag Nears Its Peak November 14, 2026
Brief Overview
SIA Engineering Co. Ltd reported second-quarter FY27 and first-half FY27 results that were largely stable, with PATMI changing 3.0% and negative 1.7% year-on-year to S$41.6 million and S$81.9 million respectively, forming 23% and 45% of Phillip Securities Research’s full-year FY27e estimate. Revenue fell 10.7% and 9.7% year-on-year to S$331.0 million and S$658.6 million respectively, on lower pass-through materials revenue, although first-half FY27 revenue excluding materials rose 1.6% year-on-year. Associates’ income increased 19% year-on-year to S$62.6 million in the first half, while joint venture income collapsed 94% to S$1 million, weighed down by SAESL expansion costs.
Investment Positives
Strong operational performance
Adjusted operating profit, excluding a one-off impairment provision for an underperforming contract booked in the first half of FY26, rose 51% to S$25.7 million. The improvement was primarily driven by lower gestation losses at Base Maintenance Malaysia (BMM), where the airframe and line maintenance subsidiaries’ operating loss narrowed 67.9% to negative S$2.6 million. Management does not expect BMM gestation costs to rise going forward.
BMM’s first hangar, which opened in May 2026, is now operating at full capacity. A second hangar arriving by the end of FY27 will absorb SIA’s A350 retrofit programme from next year, freeing Singapore capacity for third-party work. This should support a recovery in Singapore airframe profitability. BMM is already serving third-party customers, including Air India, with which SIA Engineering signed a non-binding memorandum of understanding in July 2026 that could lead to an MRO joint venture in India.
Healthy associates’ contribution
Share of associates’ profits rose 19.0% year-on-year to S$62.6 million, primarily from Eagle Services Asia (ESA). With the majority of GTF powdered metal contamination inspections now completed, ESA’s performance is being driven by routine repair and overhaul demand. Approximately 40% of A320neos use GTF engines. ESA’s Eagle 2 expansion, built for approximately 250 engines per year, is running at full capacity, and the associate is pursuing further growth opportunities.
New Safran LEAP joint venture
In June 2026, SIA Engineering signed a joint venture agreement with Safran Aircraft Engines (SAE 51%, SIA Engineering 49%; approximately US$118 million investment) to build a full LEAP-1A/1B engine and module MRO shop in Singapore. SIA Engineering’s existing LEAP quick-turn operations will transfer into the joint venture. The facility will progress from quick turn to module, piece-part and full MRO, targeting more than 100 engines a year by 2029. SIA Engineering’s initial contribution of approximately US$57.8 million is mainly for equipment and buildings, with grants sought for training. Management sees an addressable base of approximately 6,000 engines within Safran’s share of the OEM network. The analyst notes this is a larger opportunity than GTF, given LEAP’s majority share on the A320neo and exclusivity on the 737 MAX. Importantly, management does not expect the new Safran LEAP joint venture, or the expanded Safran Landing Systems facility, to add significant gestation costs.
Expansion into China
SIA Engineering acquired 30% of Arport AME in August 2026, extending its line maintenance network to four Fujian airports. Growth hinges on Xiamen’s move to the new Xiang’an airport in December 2026, where annual passenger capacity is expected to increase by approximately 55% to 45 million passengers.
Margin expansion focus
SIA Engineering is focusing on margin expansion for its core operations amid lower pass-through materials revenue. It is being selective in servicing contracts. The fleet under inventory technical management (ITM) shrank 17% to 137 aircraft from 166 in the first half of FY26, mainly from fewer A320s being serviced. The analyst believes SIA Engineering is declining or repricing contracts at renewal where rates no longer cover the higher cost base, trading fleet size for better margins.
Investment Challenges
Gestation at engine and components joint venture
Share of joint venture profit fell 94% to S$1.0 million from S$18.7 million in the first half of FY26. SAESL’s expansion costs currently being expensed include staff training, consultancy fees, and interest fees on loans taken to fund the expansion. These costs are expected to peak this financial year, with facility development work to be complete by March 2028.
Lower revenue from pass-through materials
Revenue declined 10.7% year-on-year in the second quarter and 9.7% year-on-year in the first half, primarily due to lower pass-through materials revenue, which is linked to the mix of work performed. While revenue excluding materials grew modestly, this remains a headwind to reported top-line figures.
ITM risk exposure
Under the ITM revenue model, which is based on flight hours for spare parts under the agreement and on a cost-plus-margin model for parts not under the agreement, SIA Engineering bears the risk of rising spare part costs for in-scope parts that are covered by a fixed flight-hour rate.
Outlook
Second-half FY27e performance should benefit from easing start-up losses at BMM, whose first hangar is now at full capacity. Management does not expect gestation costs to rise when the second hangar arrives by year-end. SAESL’s expansion costs are expected to peak in FY26/27, with early revenue from the Seletar site and some cost tapering by year-end offering partial gestation relief. The new Safran LEAP joint venture and the expanded Safran Landing Systems facility are not expected to add significant gestation costs. Joint venture costs are expected to taper by the end of FY27/28.
Recommendation & Target Price
Phillip Securities Research maintains a BUY recommendation on SIA Engineering Co. Ltd with a lower target price of S$3.77, reduced from the previous S$3.90. The FY27e PATMI estimate has been reduced by 3.3% to reflect updated SAESL cost assumptions. SIA Engineering is trading at a FY27e price-to-earnings ratio of 18.6 times.
Frequently Asked Questions
Q: What is Phillip Securities Research's recommendation and target price for SIA Engineering?
A: The recommendation is BUY with a target price of S$3.77, lowered from S$3.90 previously. The reduction reflects a 3.3% cut to FY27e PATMI estimates due to updated SAESL cost assumptions.
Q: Why did SIA Engineering's revenue decline?
A: Revenue fell 10.7% year-on-year in the second quarter and 9.7% in the first half, primarily due to lower pass-through materials revenue related to the mix of work performed. Excluding materials, first-half revenue rose 1.6% year-on-year.
Q: What drove the improvement in adjusted operating profit?
A: Adjusted operating profit rose 51% to S$25.7 million, primarily from lower gestation losses at Base Maintenance Malaysia, where operating losses narrowed 67.9% to negative S$2.6 million.
Q: Why did joint venture income collapse?
A: Share of joint venture profit fell 94% to S$1.0 million due to SAESL expansion costs being expensed, including staff training, consultancy fees, and interest fees on loans taken to fund the expansion.
Q: When are SAESL expansion costs expected to peak?
A: SAESL's expansion costs are expected to peak this financial year (FY26/27), with early revenue from the Seletar site and some cost tapering by year-end offering partial relief. Facility development work is expected to be complete by March 2028.
Q: What is the significance of the Safran LEAP joint venture?
A: The joint venture with Safran Aircraft Engines (approximately US$118 million investment) will build a full LEAP-1A/1B engine MRO shop in Singapore, targeting more than 100 engines per year by 2029. Management sees an addressable base of approximately 6,000 engines. The analyst notes it is a larger opportunity than GTF, given LEAP's majority share on the A320neo and exclusivity on the 737 MAX.
Q: How is Eagle Services Asia performing?
A: ESA's share of associates' profits rose 19.0% year-on-year to S$62.6 million. With the majority of GTF powdered metal contamination inspections completed, ESA is driven by routine repair and overhaul demand. Its Eagle 2 expansion, built for approximately 250 engines per year, is running at full capacity.
Q: What is SIA Engineering's current valuation?
A: SIA Engineering is trading at an FY27e price-to-earnings ratio of 18.6 times.
This article has been auto-generated using PhillipGPT. It is based on a report by a Phillip Securities Research analyst.
Disclaimer
These commentaries are intended for general circulation and do not have regard to the specific investment objectives, financial situation and particular needs of any person. Accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of any person acting based on this information. You should seek advice from a financial adviser regarding the suitability of any investment product(s) mentioned herein, taking into account your specific investment objectives, financial situation or particular needs, before making a commitment to invest in such products.
Opinions expressed in these commentaries are subject to change without notice. Investments are subject to investment risks including the possible loss of the principal amount invested. The value of units in any fund and the income from them may fall as well as rise. Past performance figures as well as any projection or forecast used in these commentaries are not necessarily indicative of future or likely performance.
Phillip Securities Pte Ltd (PSPL), its directors, connected persons or employees may from time to time have an interest in the financial instruments mentioned in these commentaries.
The information contained in these commentaries has been obtained from public sources which PSPL has no reason to believe are unreliable and any analysis, forecasts, projections, expectations and opinions (collectively the “Research”) contained in these commentaries are based on such information and are expressions of belief only. PSPL has not verified this information and no representation or warranty, express or implied, is made that such information or Research is accurate, complete or verified or should be relied upon as such. Any such information or Research contained in these commentaries are subject to change, and PSPL shall not have any responsibility to maintain the information or Research made available or to supply any corrections, updates or releases in connection therewith. In no event will PSPL be liable for any special, indirect, incidental or consequential damages which may be incurred from the use of the information or Research made available, even if it has been advised of the possibility of such damages. The companies and their employees mentioned in these commentaries cannot be held liable for any errors, inaccuracies and/or omissions howsoever caused. Any opinion or advice herein is made on a general basis and is subject to change without notice. The information provided in these commentaries may contain optimistic statements regarding future events or future financial performance of countries, markets or companies. You must make your own financial assessment of the relevance, accuracy and adequacy of the information provided in these commentaries.
Views and any strategies described in these commentaries may not be suitable for all investors. Opinions expressed herein may differ from the opinions expressed by other units of PSPL or its connected persons and associates. Any reference to or discussion of investment products or commodities in these commentaries is purely for illustrative purposes only and must not be construed as a recommendation, an offer or solicitation for the subscription, purchase or sale of the investment products or commodities mentioned.
This advertisement has not been reviewed by the Monetary Authority of Singapore.
About the author
Hashim Osman
Hashim graduated from the National University of Singapore with a degree in Business Administration.
DBS Group Holdings: Accumulate with Target Price of S$76.00 as Deposit Gains Lift NIM While Trading Fees Fall 
Alphabet Inc: Record Cloud Surge Offset by Search Slowdown — Target Price US$375 
Keppel Ltd: Asset Management Franchise Gains Momentum — Target Price S$13.80 
Lendlease REIT: Retail Resilience Drives Performance as Target Price Lowered to S$0.73 
