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Broker's take: SIA Engineering could be re-rated upwards with Singapore Airshow

SIA Engineering's (SIE) share price could be re-rated upwards with announcements of contracts or partnerships this week given the Singapore Airshow that is taking place, said DBS Research.

The stock has risen by 8 per cent on average over the last five Singapore Airshows on such announcements, the brokerage said in a note on Monday.

It noted that SIE's share price has fallen about 20 per cent from its previous peak in the last seven months, due to a combination of factors: weaker than expected first-half earnings, removal from the Straits Times Index since September last year, and an alleged bulk sale of shares at a discount.

Its forward price-earnings ratio is now about one standard deviation lower than its five-year average, said analysts Suvro Sarkar and Glenn Ng. "We now see an opportunity to buy on weakness."

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In the medium term, SIE has some opportunities, they added.

A GE engine facility is likely to be operational in 2019. The firm is slated to perform cabin retrofitting work on SIA legacy A380s at the end of 2018 at the earliest. It is also gradually ramping up its Japan line maintenance operations.

"We expect EPS (earnings per share) growth to return to positive territory from FY19 onwards," said the DBS analysts, who revised their target price upwards to S$3.86.

The stock traded at S$3.32 as at 10.38am on Monday.

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