Singapore Airlines - Risk-Reward Now In Balance: Downgrade To HOLD
- SIA (SGX:C6L) reported a core net loss of S$268m in 2HFY22 (Oct 2021 to Mar 2022), which is 44% narrower y-o-y and 69% narrower h-o-h, due to stronger cargo profits and lower share of associate losses, partly offset by lower deferred tax credits.
- Our end-CY22F target price for SIA is raised to S$5.92, based on a target P/BV multiple of 0.98x (+0.5 standard deviation above the mean since 2011 of 0.92x), applied to the end-FY23F adjusted BVPS. Our previous target price was S$5.88, based on a target P/BV multiple of 1.06x (+1 standard deviation above the mean). We have reduced the target P/BV multiple after raising our earnings forecasts. Valuing SIA at a P/BV mean of 0.92x (since 2011) yields a fair value per share of S$5.56.
- Upside risks include a faster-than-expected recovery in international passenger traffic and average ticket prices after 1 April 2022 as Singapore has opened up quarantine-free travel to fully-vaccinated travellers from around the world. Furthermore, airfreight markets remain strong given the still-choked container shipping logistics chain; China’s Shanghai region plans a release from COVID-19 lockdown from 1 June 2022F and this could stimulate air cargo volumes from the recent weakness in March and April.
- Conversely, the significant oil price increases pose the largest downside risk. SIA is only 40% hedged at an average Brent strike price of US$60/bbl from Apr 2022 to Jun 2023F, beyond which SIA is unhedged. At the time of writing, Brent crude is trading at US$113/bbl and Singapore jet fuel at US$133/bbl, which are multi-year highs.
Above is the excerpt from research report by CGS-CIMB.
Clients of CGS-CIMB may access the full report in PDF @ https://www.itradecimb.com.sg/.
Raymond YAP CFA CGS-CIMB Research | https://www.cgs-cimb.com 2022-05-19 2022-05-19
Read also CGS-CIMB's most recent report:
2022-06-13 Singapore Airlines - Multiple Risks Cloud Strong Revenue Trend
Target prices by 2 other brokers at SIA Target Prices.
Listing of broker reports at SIA Analyst Report.
SIA Share Price History,
SIA Dividends & Corp Actions,
SIA News Articles