Singapore Airlines (SIA) - CGS-CIMB Research 2023-01-16: Time To Pocket Share Price Gains

Singapore Airlines (SIA) - Time To Pocket Share Price Gains

  • Downgrade Singapore Airlines (SIA) from Add to HOLD as SIA's share price has re-rated 16.5% over the past 3 months on optimism over China’s reopening on 8 Jan 2023. Even with strong dividends, remaining upside no longer compelling.
  • China reopened its borders to quarantine-free international arrivals on 8 Jan 2023, with the only requirement being a negative PCR test result 48 hours before departure. As we expected, this triggered a rally in SIA's share price in the past week. Over the next one year, we expect SIA to deliver total returns of 6.5%, comprising our target price of S$5.97 and estimated dividend payments of S$0.27 (S$0.22 final dividend forecast to be announced in May 2023, representing ~50% FY23F dividend payout, and S$0.05 interim dividend forecast to be announced in Nov 2023). While this return is decent, it is no longer above our 10% threshold for an ADD recommendation.
  • Our target P/BV of 0.9x is SIA’s mean P/BV since 2011; we think that a mean P/BV multiple is appropriate as we expect SIA’s forward earnings to normalise in the post-pandemic period.
  • SIA will release its 3QFY23F results on 21 Feb 2023 (See Earnings Calendar). We recommend investors to lighten their positions on SIA, especially if SIA's share price runs up further in anticipation of strong 3QFY23F (Oct-Dec 2022) results, driven by likely high passenger airline demand and moderation in jet fuel prices.
    • We have raised our 2HFY23F passenger RPK demand forecast by 4% as the Oct and Nov 2022 operating statistics suggest that our previous expectations will likely be exceeded due to both higher-than-expected ASK capacity and PLF.
    • At the same time, spot jet fuel prices have weakened from US$142/bbl in Apr-Jun 2022 to US$129/bbl in Jul-Sep 2022 to US$118/bbl in Oct-Dec 2022. Hence, we cut our all-in jet fuel price assumptions (net of hedging gains) for FY23F from US$119/bbl to US$114/bbl, for FY24F from US$116/bbl to US$110/bbl, and for FY25F from US$114/bbl to US$107/bbl due to both lower Brent crude oil price assumptions and lower jet-fuel-to-Brent crack spread assumptions.
    • Conversely, cargo demand for Oct-Nov 2022 is weaker than our earlier expectations; hence, we lower our 2HFY23F RFTK demand forecast by 5%, cut our RFTK forecast for FY24-25F by 5%, and lower our cargo yield assumptions for FY23-25F by 4-7%.
  • We expect cargo demand weakness to remain a key downside risk for SIA, especially in light of the likely slowdown in global GDP growth this year and the precipitous decline in container shipping freight rates that could also impact cargo yields.
  • China’s border reopening may be a double-edged sword for SIA – while SQ/TR will reinstate capacity to China and benefit from a recovery in inbound and outbound passenger flows, escalating competition with Chinese and HK carriers may force SIA to give up its unsustainably fat yield premiums.

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 | 2023-01-16

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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