OCBC upgrades SIAEC to ‘buy’ as other analysts weigh expansion costs impact

[SINGAPORE] OCBC upgraded SIA Engineering Company (SIAEC) to a “buy” after its positive results and on a “constructive” outlook for aircraft maintenance, repair and overhaul (MRO) services in Singapore.

“Although manpower shortages and supply chain constraints have placed upward pressure on costs, we remain constructive on the broader MRO industry and especially engine maintenance,” said OCBC analyst Ada Lim on Friday (Feb 20), raising SIAEC’s target price from S$3.68 to S$4.05.

Rising operational issues, such as those with RTX-owned Pratt & Whitney’s geared-turbofan engines used on the popular Airbus A320neo family, are set to require more inspections and unplanned maintenance visits, she added.

“We think SIAEC is well-poised to capture robust MRO demand given its investments into capacity expansion and capability development, continued growth of its portfolio of partnerships, and exposure to the up-and-coming India market,” said Lim.

However, she cautioned that the benefits may take some time to manifest given “startup costs and ongoing tariff uncertainty”.

SIAEC on Thursday reported a net profit of S$41.9 million for the third quarter, up 9.7 per cent from the year-ago period. It said that demand for its MRO services remained steady as flight-handling volumes across its line maintenance network grew 3 per cent year on year.

Shares of SIAEC rose 2.6 per cent to close S$0.09 higher at S$3.57 on Thursday, before the announcement.

Startup cost drags could extend into FY2027

CGS International analyst Raymond Yap described the profit figures as relatively flat. He noted that profits from associated companies and joint ventures jumped a healthy 15.8 per cent due to good timing on maintenance projects, though these gains were partially offset by initial setup costs for capacity expansion at Singapore Aero Engine Services, its joint venture with Rolls-Royce.

He also highlighted that overall operating profit declined 23.9 per cent quarter on quarter. This drop was driven primarily by startup losses from the new Base Maintenance Malaysia hangar in Subang and the commencement of line maintenance operations at Cambodia’s new Techo International Airport in September 2025.

The company also commenced line maintenance operations in Manila from Jan 1 this year.

DBS analyst Jason Sum maintained a “hold” with a target price of S$4, noting that the third-quarter results slightly missed expectations due to disappointing core operating margins, which slipped 40 basis points quarter on quarter to 1.7 per cent.

He cautioned that while startup and information technology costs may have peaked, cost drags will likely persist into the 2027 financial year as the Manila line maintenance unit scales up and the second Subang hangar prepares for operational readiness.

UOB Kay Hian’s Roy Chen maintained a “buy” and set a target price of S$3.92, viewing the results as broadly in line with estimates. He pointed out that the company still maintains a robust net cash position of about S$570 million and expects the Subang startup costs to peak within the next three to four quarters.

Engine constraints to boost MRO

The OCBC analyst noted that aircraft and engine availability remain a significant growth constraint for the aviation industry, citing International Air Transport Association estimates that order backlogs have reached almost 60 per cent of the active global aircraft fleets as at December 2025.

Airbus also forecast lower-than-expected commercial plane deliveries in 2026, citing limited engine availability at Pratt & Whitney.

At the Singapore Airshow 2026, on Feb 3, SIAEC’s MRO joint venture with engine manufacturer Safran broke ground on a S$22 million facility expansion. The site is expected to be completed by September and will add 40 per cent to the company’s existing capacity.

As a result, Singapore is set to become Safran’s largest MRO site in Asia-Pacific for landing gear on several aircraft types.

MRO was a strong focus at the airshow, with GE Aerospace set to inject US$300 million to boost its Singapore engine repair business and RTX set to invest S$139 million in Singapore through its Collins and Pratt & Whitney units.

“We like that SIAEC has been actively investing in capacity expansion to benefit from the ongoing MRO upcycle,” said OCBC’s Lim.

Still, she cautioned that higher startup and development costs are a key risk for SIAEC in the near term.