Highlights

• SIAEC’s 1QFY27 net profit S$40.3m (-6.1% yoy) was impacted by expansion-related gestation costs at its engine JVs, excluding which, SIAEC’s earnings would have grown about 10% yoy.
   

• Fundamentals of all major business lines remained healthy.
   

• We are positive on SIAEC’s recent business developments, including its new engine JV with Safran and MOU signed with Air India.
   

• Investors should look beyond near-term earnings volatilities from gestation cost drags and stay invested for SIAEC’s medium-term growth potential.
   

• Maintain BUY, with a slightly lower target price of S$3.75, still based on 21.2x FY28F PE (historical mean). SIA offers a fine 3.5-4.0% yield for FY27-28.
   

Analysis

• Strong 1QFY27 underlying performance masked by gestation costs related to capacity expansion. SIA Engineering’s(SIAEC) 1QFY27 net profit of S$40.3m (-6.1% yoy) was slightly behind our projection, at 22% of our full-year forecast. 1QFY27 saw yoy lower earnings contribution from engine JVs/associates (down S$7.0m or 19.2% yoy), as one of its key engine MRO JVs, Singapore Aero Engine Services, incurred gestation costs for capacity expansion works. Excluding the gestation costs, SIAEC’s earnings would have risen about 10% yoy, by our estimate.