You are here

Broker's take: DBS says SIA Engg should be past the worst soon, upgrades to 'hold'

DBS Group Research on Monday upgraded SIA Engineering (SIA Engg) to "hold" from "fully valued", with a raised target price of S$2.30 from S$1.35 previously.

As at 11.28am, SIA Engg shares were trading 0.5 per cent or S$0.01 higher at S$2.23. The counter had rallied on Friday to a close of S$2.22, up S$0.20 or 9.9 per cent.

DBS's research team said the quarter ending June 2020 - that is, Q1 of fiscal 2021 - will be the darkest quarter for the company, with overall flight numbers at Changi likely to be down by more than 85 per cent.

"But we believe there is light at the end of the tunnel with the signing of more bilateral flight-resumption agreements by Singapore, which should help to boost line maintenance demand from Q2 FY2021 onwards," said analysts Suvro Sarkar and Jason Sum in a research note. 

The government's enhanced Jobs Support Scheme for the maintenance, repair and overhaul sector will also enable SIA Engg to save more on staff costs in fiscal 2021.

Your feedback is important to us

Tell us what you think. Email us at

The enhanced support measures should also allow the company to maintain dividends at S$0.08 in fiscal 2021 without further cuts, hence improving investor sentiment for the stock.

As a result, DBS is raising SIA Engg's earnings forecast by about 28 per cent for FY2021 ending March 2021.

The research team is projecting a 40 per cent decline in line maintenance revenues in fiscal 2021 compared with fiscal 2020, before recovering in fiscal 2022.

DBS's views come amid optimism for the local aviation sector as Singapore moves to gradually restore flights on a bilateral negotiation basis.

With infection spreads largely under control in Singapore and China, both countries have gone on to pioneer arrangements to resume international flights between them by launching a "fast-lane" arrangement to facilitate essential travel for business and official purposes.

Aircraft movements at Changi Airport - which drives line maintenance demand - should also "improve materially" from Q3 2020, the DBS analysts said, adding that they believe the July-August period will be critical months for the restoration of confidence of travellers and governments in air travel.

"This should set the stage for quasi normalisation of flight numbers by early next year, though we do not believe aircraft movements will reach pre-Covid-19 levels even by the end of 2021," they added.

BT is now on Telegram!

For daily updates on weekdays and specially selected content for the weekend. Subscribe to