SINGAPORE (July 4): OCBC Investment Research is maintaining its “hold” recommendation on SIA Engineering Company (SIAEC) with a fair value of $3.75.

This comes after its joint venture (JV) with Pratt & Whitney (P&W) was selected as a maintenance, repair and overhaul (MRO) facility while SIAEC has also set up a new JV with GE Aviation (GE).

Eagle Services Asia (ESA) – a JV between SIAEC and P&W (Pratt & Whitney) – has been selected as an MRO facility in Singapore for P&W’s PW1100G-JM PurePower Geared Turbofan (GTF) engines, which is one of the two engine options that powers the A320neo aircraft family.

ESA will be investing about US$85 million ($117 million) to equip their facility to perform MRO services on the GTF engines.

In a Tuesday report, analyst Eugene Chua says, “We view this positively as it creates a new revenue stream for ESA, especially since profit contributions from ESA have been on a declining trend mainly due to the retirement of the older four-engine B747-400 aircraft, which is powered by P&W’s PW4000 engines.”

Chua also noted that PW4000 engines used to be ESA’s main revenue driver.

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The A320neo aircraft family has been increasing in demand and according to Airbus, as at May 31, there is a backlog order of 4,937 for the aircraft, of which 30% are orders from Asian-Pacific airlines.

The GTF engine production backlog orders will take ESA about eight years to clear.

“In our view, the data clearly indicate the expected strong growth in demand for the MRO services of the GTF engines over the longer-term, as more A320neo aircraft are delivered over time,” says Chua.

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SIAEC have also established a new JV with GE to provide engine MRO services for the GE90 and GE9X engines.

In this new JV, GE will hold 51% stake, while SIAEC holds 49%, which will establish a state-of-the-art facility to combine advanced technologies with data analytics to enhance productivity.

Chua believes that this JV will become the main MRO facility to serve these aircrafts in the region.

However, as time is needed to build up the business, Chua does not expect any near-term impact from the JV, but views this positively as it will contribute to SIAEC’s growth over the longer-term.

As of 10.49am on Tuesday, shares of SIAEC are trading at $4.09.

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