Highlights

• 1HFY27 net profit of S$81.9m (-1.7% yoy) is in line with our expectations, forming 48% of our full-year forecast.
   
• Underlying earnings growth was masked by higher gestation costs at its engine JV SAESL. Excluding the gestation costs for SAESL, we estimate that SIAEC’s earnings would have improved by close to 20% yoy.
   
• SIAEC continues to push capacity and regional expansion, which come with near-term gestation pains. That said, gestation costs are expected to peak in FY27 and taper from FY28 onwards, driving a medium-term earnings growth.
   
• Maintain BUY, with a slightly lower target price of S$3.60, based on 21.3x FY28F PE (pegged to its historical mean).
   

Analysis

• Results in line. SIA Engineering’s (SIAEC) 1HFY27 results are in line with our expectations, with reported net profit of S$81.9m (-1.7% yoy), forming 48% of our full-year forecast. Operating profit almost doubled yoy to S$25.7m, driven by healthy business volumes and lower gestation losses related to expansion. However, the improvement in operating performance was offset by weaker contributions from JVs and associates (S$63.7m in 1HFY27, down 10.7% yoy), lower net interest income and higher tax expenses. SIAEC maintained its interim dividend at 2.5 S cents per share for 1HFY27.