SIA Engineering to derive more contributions from its operating business

AVIATION maintenance, repair and overhaul (MRO) services provider SIA Engineering (SIAEC) will lean more on its operating business in the next two to three years as it scales up processes, said chief executive officer Chin Yau Seng.

At its financial results briefing on Wednesday (Nov 6), the helmsman noted that contributions from its associated and joint venture (JV) companies have bulked up the bottom line of Singapore Airlines ’ (SIA) MRO subsidiary recently.

“In the coming period, we have to lean more on the operating side of business, the core business,” added Chin, without giving any forward guidance on this aspect.

SIAEC’s operating profit for the second quarter of FY2025 to September was S$2.4 million, a reversal from a loss of S$300,000 in the year-ago period.

By contrast, its associated and JV companies contributed S$30.6 million, up 8.9 per cent or S$2.5 million year on year.

This accounted for the lion’s share of SIAEC’s net profit of S$35.6 million, which was 10.2 per cent higher year on year.

Earnings per share stood at S$0.0317 versus S$0.0287 for the year-ago period. The group declared an interim dividend per share of S$0.02, unchanged from a year ago.

Revenue was S$307.5 million, up 22 per cent from S$252.1 million. Net asset value per share was S$1.47 as at end-September, marginally lower than the S$1.503 six-months prior to that.

Cabin refurbishment

Chief financial officer Ng Lay Pheng added: “Everything that we are doing is... building a lot of foundation. Going forward, we definitely need to lean more in terms of the operating performance.

“Quite a fair bit of things have been done, and we are definitely working towards delivering something a lot more meaningful. At the moment, it is not showing but I assure you that a lot of effort has gone into building that and getting us ready.”

When asked whether operating profit would stay at the current level, Ng replied that it was very difficult to say especially when the recent numbers were very small.

Meanwhile, SIAEC is riding on the robust demand for MRO services arising from increasing air travel capacity and ageing fleets amid protracted delivery delays by planemakers Boeing and Airbus.

Said Chin: “The demand for MRO services continues to be very, very strong... So it’s not a bad place to be as a supplier.” He added: “In a way, we can almost say... we can pick the business because it is kind of a sellers’ market.”

Also, SIAEC will be undertaking the upcoming S$1.1 billion cabin refurbishment that SIA recently announced. This involves retrofitting 41 Airbus A350-900 long-haul and ultra-long-range aircraft with newer cabin products.

While capacity has been tight, SIAEC will be able to handle SIA’s cabin upgrade. Chin pointed out that its Subang base in Malaysia would be operational in 2025, adding to the company’s network capacity.

But Chin would not disclose the margin from the multi-year programme. Neither was there information about whether the revenue would be recognised in equal percentages from 2026 or to be ramped up in later years.

DBS analyst Jason Sum wrote in a note published on Wednesday that SIAEC’s Q2 net profit has missed street expectations, including his research house’s. He added that profitability was impacted by margin erosion at SIA Engineer’s core business – base and line maintenance.

He also expects SIA’s cabin upgrade to contribute approximately S$40 million to S$60 million in incremental annual revenue for SIAEC from FY2027 to FY2031, potentially boosting FY2027 net profit by about 2 to 3 per cent – assuming a mid-to-high single-digit margin profile.

OCBC analyst Ada Lim said in a report released after the financial results briefing that SIAEC is well-poised to capture robust MRO demand, given its investments in capacity expansion and capability development, the increasing strength of its portfolio of partnerships, and exposure to the up-and-coming Indian market.

But she also noted that it may take some time for the company’s efforts to bear fruit.

SIAEC shares slid 1.6 per cent or S$0.04 to close at S$2.45 on Wednesday.