Maybank Investment Bank Bhd (Maybank IB) has lowered its 12-month target price (TP) for SAM Eng & Equipment Bhd to RM5.50 from RM5.71, reflecting a modest cut in earnings forecasts for FY25-FY27E that is due to the anticipated start-up costs in the aerospace segment and more conservative revenue growth assumptions in the equipment segment.

However, despite a slight reduction in TP, the research house has maintained its BUY call for SAM after the company posted a solid financial performance in its second quarter financial year 2025 (2QFY25) results.

For 2QFY25, SAM reported a core net profit of RM20.3 million, a significant 106% increase quarter-on-quarter (QoQ), although it still recorded a 39% decline year-on-year (YoY). The cumulative 1HFY25 core net profit of RM30.2 million was in line with Maybank IB's expectations, comprising 37% of its full-year forecast.

SAM's aerospace segment showed a notable turnaround in 2QFY25, bouncing back from issues in 1QFY25, where product deliveries were delayed due to a redesign and material shortages. Furthermore, the equipment segment saw strong QoQ growth, with revenue up 15% and core profit after tax climbing 30%, driven by rising customer demand.

Despite the ongoing challenges in the aerospace industry, SAM remains well-positioned for long-term growth with global aerospace production expected to increase as major players like Airbus SE and Boeing Co plan to ramp up production rates in the coming years.

Airbus aims to boost its A320neo production rate to 75 units by 2027, while Boeing plans to raise its 737Max and 787 productions to 50 and 10 units respectively by 2026. These production increases are expected to help alleviate supply chain constraints, which have hindered previous output.

Maybank IB continues to view SAM as a secular growth company, supported by high-profile customers in the aerospace sector.

Despite the short-term challenges, SAM's long-term growth prospects remain intact, with the company targeting a doubling of revenue over the next five years. The revised earnings forecast implies a 13% compound annual growth rate in core net profit for FY24-FY27E, further strengthening its growth story.