SIA Engineering’s share price has soared recently, with the stock up around 43% year-to-date (YTD). Investors may be asking: What is contributing to this rally, and will it persist?
Background
SIA Engineering Company Ltd (SGX: S59), or SIAEC, is the maintenance, repair, and overhaul (MRO) arm of Singapore Airlines (SGX: C6L).
It provides aircraft line maintenance, engine overhaul, and related services, and its client base includes more than 80 international carriers – with Singapore Airlines being one of them (of course!) – and aerospace equipment manufacturers.
Recent Performance
SIAEC’s share price has rallied strongly YTD to S$3.41, which is near both a 52-week and five-year high.
SIAEC reported strong results for its first fiscal quarter (1Q FY5/26).
Revenue soared 33.4% year-on-year (YoY) to S$358.4 million.
With revenue growth outpacing expense growth, SIAEC’s operating profit skyrocketed 410% to S$5.1 million.
Operating margin reached 1.4%, an increase from the prior year’s 0.4%.
Net profit of S$42.9 million grew 29.2% YoY, because of strong contribution from its share of profits from associated and joint venture (JV) companies.
The company’s results were lifted by steady MRO demand, as evident by flights handled, which increased 3.5% YoY to 39,458.
SIAEC stopped paying a dividend in FY20/21 because of COVID and resumed in the second half of FY22/23.
Since then, SIAEC has paid a cumulative dividend of S$0.225 per share.
Although the interim dividend (paid during the first half of each fiscal year) has been maintained at S$0.02 per share, the final dividend has increased by 27.3% to S$0.07 per share for FY24/25 since the company resumed paying dividends.
Growth Drivers Behind SIA Engineering’s Rally
The company’s YTD share price rally has been supported by several growth drivers in its business: Changi Airport and travel recovery; expansions in partnerships & JVs; and cost management.
In 2024, Changi Airport handled 67.7 million passenger movements, which was up 15% YoY and reached 99.1% of 2019’s level.
The airport also moved 2 million tonnes of cargo during the year, a 15% increase from a year ago.
With the ongoing construction of a fifth terminal and the addition of new city links, the growth trends could continue.
Indeed, Changi Airport continued to see increases in passengers and air cargo in the first two quarters of 2025, with mid-single-digit percentage YoY growth for both metrics.
These drive demand for SIAEC’s MRO services.
SIAEC has been aggressively pursuing accretive partnerships and JVs.
The company’s collaborations with Pratt & Whitney, Rolls-Royce, and others help drive demand for the company’s MRO services.
The company has been inking new collaborations recently, such as with the Cambodia Airport Investment Co, Trax Technologies , and Eaton Corporation (NYSE: ETN).
SIA Engineering has also been optimising its cost structure.
Since the launch of its continuous improvement programme in May 2023, the company has implemented various initiatives that have resulted in higher productivity while reducing turnaround time and operating costs.
The results can be seen in SIAEC’s improvement in its operating margin, from 0.2% in FY23/24 to 1.2% in FY24/25, and 1.4% in 1Q FY25/26.
Risks and Challenges Investors should monitor
Despite SIAEC’s strong current fundamentals, investors should still be mindful of its risks and challenges.
SIAEC’s bread and butter MRO services are still heavily dependent on the health of the aviation industry.
Any global or regional economic downturn could lead to turbulence in the industry, affecting passenger and cargo volumes.
This could pressure SIAEC’s revenue and earnings.
Fierce competition from China, Malaysia, and Thailand could also threaten SIAEC’s business.
There are heavyweight MRO providers in the region, including AMECO Beijing (SHA: 601111), Air Asia Engineering (KLSE: AAX), AGAM Aerospace, and BTAS Aerospace (Euronext: HO.PA).
The bulk of SIAEC’s labour force is likely to be in Singapore.
Rising manpower costs in Singapore, with real wages growing 3.2% YoY in 2024, is a headwind to SIAEC’s profit margin and earnings.
The Monetary Authority of Singapore (MAS) is projecting further wage growth in 2025, although the rate of growth is expected to slow.
Nonetheless, investors should watch for reduced earnings from SIAC because of higher wages.
Consulting firm Bain commented in July 2024 that MRO demand for aircraft engines is likely to peak in 2026 before surging again in 2030.
If true, SIAEC’s business could face an air pocket in demand in the next few years.
Overall Verdict – Strong Fundamentals and Industry Tailwinds
SIAEC’s strong rally is backed by strong fundamentals and industry tailwinds.
Although the aviation recovery story is projected to continue, there are still risks to note.
SIAEC provides a good opportunity for investors seeking exposure to the aviation services industry, with decent dividends.
Get Smart: A Stable Cyclical Play on Travel
SIAEC’s recent price appreciation is the result of strong capitalisation on the recent rebound in global travel demand, with rising maintenance demand fuelling its revenue and earnings.
The company has also strengthened its partnerships and JVs, and improved its cost structure, further improving its fundamentals.
There are risks to note, but SIAEC shares offer investors a stable way to tap into Asia’s booming aviation hub.
We’ve found 5 SGX-listed dividend stocks with strong track records in turbulent markets. If you want consistency in an uncertain world, start here.
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Disclosure: Wesley does not own shares in any of the companies mentioned.
