By augustine16 //
February 2, 2023

Excerpts from CGSCIMB report

SIA Engineering (SGX: S59)

  • SIA Engineering (SIE)’s 1HFY3/23 net profit of S$32m (+30% yoy) was above expectations due to stronger JV contribution (+213% yoy) from more engine inductions.
  • Core business and JV/associates recovering faster than expected, but expect high staff costs to persist. Management maintained its cautious guidance.

Our TP is raised slightly to S$2.44, pegged to 1.6x CY23F P/BV. Net cash healthy at c.25% of current market cap.

Stronger revenue and JV contribution, but higher opex

SIA Engineering (SIE) reported 1HFY3/23 net profit of S$32m (-24% hoh, +30% yoy), forming 59% of our and 45% of Bloomberg consensus FY22F forecasts. This was below consensus expectations, but above ours due to stronger JV contribution.

1HFY23 revenue improved 37% yoy to S$362m on the back of rising flight volumes at Changi Airport. EBIT loss widened to S$10.8m (vs. 1H22: S$6.7m loss), with higher revenue offset by higher material (+39% yoy) and staff costs (+51% yoy).

Share of associates’ and JV profits rose 54% yoy to S$41m mainly from better engine and component works (SAESL). No interim dividends were proposed in view of the tough operating environment.

SIA Engineering 1HFY23 revenue recovered to 69% of pre-Covid-19 levels

Group revenue recovered to 69% of pre-Covid-19 levels in 1HFY23 (vs. 2HFY22: 59%), with both airframe overhaul and engine & component recording strong yoy growth of 35% and 51%, respectively.

Flights handled by SIE at Changi Airport increased to 45k (+67% hoh, +118% yoy) in 1HFY23 in tandem with rising aviation traffic. Engine & component JVs/associates recorded stronger engine induction volumes in 1HFY23 from rising aircraft utilisation in the region.

In view of the faster-than-expected pace of recovery, we raise our FY23-25F revenue by 1-7% and our associates/JV contribution by 2-19%.

SIA Engineering elevated staff costs likely to persist; guidance remains cautious

Staff costs rose further to S$192m (+24% hoh, +51% yoy) in 1HFY23, which we attribute to 1) rising headcount, and 2) inflationary pressures. Management shared that the group increased its headcount in 1HFY23 ahead of the expected recovery in flight volumes.

Line maintenance headcount is already close to desired levels, while further headcount increase is expected for base maintenance and engine services, according to the management. We raise our FY23-25F staff costs further by 3-7% accordingly.


Reiterate Add at a higher TP of S$2.44, based on 1.6x CY23F P/BV. With our new assumptions, our FY23F EPS is raised by 30%, while FY24-25 EPS is tweaked up by 0.2-2.3%.

Net cash remains healthy at S$606m (c.25% of the group’s current market cap). We reiterate Add at a slightly higher TP of S$2.44, pegged to 1.6x CY23F P/BV, based on c.1 s.d. below the group’s 6-year historical average.

The group currently trades at 1.4x CY23F P/BV, 1.2 s.d. below historical mean. Re-rating catalysts include quicker improvement in labour shortages, and reopening of China. Downside risks include recession risks and margin erosion from rising cost pressures

SIA Engineering share price chart
SIA Engineering share price chart

You can find the full report here and the company website here

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