Singapore Airlines - CGS-CIMB Research 2022-11-08: Enumerating Downside Risks To SIA; Exceptional FY23 Not Likely Repeatable

Singapore Airlines - Enumerating Downside Risks To SIA

  • SIA (SGX:C6L) hosted its post-1HFY23 (Apr-Sep 2022) results briefing yesterday – SIA did not provide any forward guidance, but said that as competitors reinstated capacity, it is natural to expect yields to moderate from the exceptional situation in FY23F which saw SIA catering effectively to a surge in demand while its competitors struggled to reactivate their idled airplanes.
  • The uncertainty over rising interest rates, inflation, and potential recession next year is also clouding the demand outlook. We share this view and have forecast weaker FY24-25F earnings for SIA.
  • In order to build a base of forward bookings, SIA is offering promotional fares across its network for travel in early-CY23; this could be a sign that SIA is taking preemptive action to lock in demand before other competitors ramp up capacity that may pressure fares lower.
  • Another wild card is how quickly the cargo markets will weaken. We suspect that demand will at best remain stable q-o-q, but yields will almost surely decline, due to the reinstatement of competitors’ air freight capacities, the collapse of container shipping freight rates, and the slowdown in consumer demand in the US and Europe.
  • See our earlier report: Singapore Airlines - CGS-CIMB Research 2022-11-07: Huge 2QFY23 Profit; 3Q To Be Even Bigger? and SIA's dividend history. We have pencilled in a ~50% payout ratio in our FY23-25F forecasts. We think our 50% payout assumption is reasonable, but SIA did not comment on its dividend policy at yesterday’s results briefing.
    • In 1HFY20 (Apr-Sep 2019), SIA paid out 46% of its reported net profit as dividends.
    • In FY19, the last full year before the onset of the COVID-19 pandemic, SIA’s payout ratio was 52%;
    • FY18: 36%;
    • FY17: 66%;
    • FY16: 65%;
    • FY15: 70%.
  • SIA announced it will redeem the entire S$3.5bn of its first tranche of Mandatory Convertible Bonds on 8 Dec 2022; SIA said that it will take its time to decide on the redemption, in whole or in part, of the second tranche of S$6.2bn. SIA is not in a rush as borrowing costs have risen above 5%, making the 4% per annum MCBs attractive.
  • We expect SIA's share price to find support from likely outstanding results for 2HFY23F, but recommend investors to lighten up once China announces the reopening of its borders based on a ‘sell on fact’ strategy, as SIA's exceptional FY23F performance is not likely be repeatable going forward.

Above is the excerpt from research report by CGS-CIMB.
Clients of CGS-CIMB may access the full report in PDF @

Raymond YAP CFA CGS-CIMB Research | 2022-11-08

Read also CGS-CIMB's most recent report:
2023-01-16 Singapore Airlines (SIA) - Time To Pocket Share Price Gains.

Previous report by CGS-CIMB:
2022-12-06 Singapore Airlines - Merger Of Vistara & Air India ~ Better Than Standing Alone.

Price targets by 3 other brokers at SIA Target Prices.
Listing of research reports at SIA Analyst Reports.

Relevant links:
SIA Share Price History,
SIA Announcements,
SIA Dividends & Corporate Actions,
SIA News Articles

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