SIA Engineering (SIE) has downgraded its stock rating from Add to Reduce following a significant 54% increase in its share price over the past three months. The company reported a net profit of $31.5 million (S$42.9 million) for the first quarter of FY26, exceeding expectations and representing a 29% increase quarter-on-quarter. This surge was attributed to a 36% rise in profits from its associates and joint ventures, particularly in engine and component maintenance.
Despite the positive earnings outlook, SIE’s operating profit fell slightly from $4.7 million (S$6.4 million) in the previous quarter to $3.7 million (S$5.1 million), due to start-up costs associated with its overseas expansion initiatives. These include new maintenance facilities in Malaysia and a joint venture in Cambodia, expected to commence operations later this year.
The company’s new contracts with Singapore Airlines (SIA) and Scoot, effective from 1 April 2025, are anticipated to boost manpower charge-out rates, aligning with rising labour costs. However, SIE remains cautious, expecting to fully realise these benefits in the second half of FY26, contingent on meeting performance metrics.
Whilst the medium-term outlook remains positive, the share price already reflects the current earnings trajectory. The company warns of potential derating catalysts, such as increased start-up and gestation losses, although there is an upside risk if performance metrics are met. The target price remains at $2.28 (S$3.10), with a current price of $2.46 (S$3.35), indicating a downside of 7.5%.
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