Singapore Airlines - F1 & MICE Events To Spur Travel Demand
- We expect SIA (SGX:C6L) to do very well in the coming quarters, due to the combination of rising capacity restoration, strong demand, high load factors and robust yields. For FY23F (1 Apr 2022 to 31 Mar 2023) as a whole, we think that the SIA group should be able to restore 74% of its pre-COVID-19 capacity, rising to at least 95% in FY24F or higher if China reopens its borders sooner.
- Competition has also been relatively muted so far, with airlines in Southeast Asia gradually ramping up capacity deployment and certain key competitors such as Cathay Pacific and the mainland Chinese airlines still held back by Hong Kong’s border controls.
- On the demand side, SIA expects the strong demand in 1QFY23 to continue until Dec 2022, based on the robust forward booking curve.
- In 1QFY23, SIA group achieved a passenger load factor (PLF) of 79%, with Jun 2022 PLF at 85.5%. The strength in demand continued into Jul 2022 with PLF at 87.4%, which is the second-highest PLF in SIA’s history. In light of this, our previous FY23F PLF assumption of 79% appears too conservative, and we now raise it to 83%, while we also raise PLF assumptions for FY24-25F from 79-80% previously to 82%.
- Anecdotally, Singapore is seeing strong inflows of foreign professionals, while the F1 race event scheduled for 30 Sep to 2 Oct this year could draw as many as 35k tourists, with hotel room rates already spiking. Separately, the line-up of MICE events in 2H22F could further boost inbound travel into Singapore. These include major international events, such as Food and Hotel Asia – Food & Beverage (5-8 Sep) and Food and Hotel Asia (25-28 Oct), with each expected by the Singapore Tourism Board to attract more than 30,000 physical attendees.
- Cargo yields are also likely to remain elevated, especially between Europe and North East Asia, due to the avoidance of Russian airspace.
- We have raised our 2022 year-end target price for SIA from S$5.89 to S$6.10, still based on an unchanged target P/B multiple of 0.95x (mean since 2011), applied to the end-FY23F adjusted BVPS. We are applying the P/B mean to derive our target price for SIA (and not any higher), as we have already reflected the strong near-term outlook into our earnings forecasts and book values for SIA. Our target price has been increased because we have raised our FY23-25F core net profit forecasts for SIA by 55-66%. We upgrade our call on SIA from Hold to ADD, as we expect SIA to surprise the market with very strong FY23F earnings. Our FY23F core net profit forecasts for SIA are 62% above Bloomberg consensus.
- Key downside risks include the potential for oil prices to surprise on the upside in the event of negative geopolitical developments, and more competition as and when other airlines are able to redeploy more of their fleet.
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 2022-08-22 2022-08-22
Previous report by CGS-CIMB:
2022-07-29 Singapore Airlines - Excellent 1Q23; All The Pieces Fall Into Place
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