2H23 Aviation Sector Outlook - UOB Kay Hian 2023-07-10: Continued Recovery Amid Macro Uncertainties

• Air traffic is expected to recover further in 2H23 but air cargo outlook is likely to be subdued. We expect SIA and SIA Engineering to show improving profitability in 1QFY24 (Apr to Jun 2023) but SATS to report losses mainly due to a negative contribution from WFS.
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• We expect near-term volatility for SATS's share price (Target price: S$2.99).
• Maintain SELL on SIA (Target price: S$7.07) while expecting good 1QFY24 results.

Expecting continued recovery of air travel in 2H23, with air traffic from/to China as a key driver.

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• SATS (SGX:S58)’s aviation food services and part of its gateways services, and
• SIA Engineering (SGX:S59)’s line maintenance and aircraft MRO businesses.

Before the pandemic, air travel between Singapore and Mainland China was the second largest contributor to Changi Airport’s passenger volume, forming 10.9% of the total throughput in 2019 (second to Indonesia's 12.2%).

Since China’s reopening in Jan 23, air traffic between Singapore and China has seen a meaningful pick-up, standing 47% of pre-pandemic levels as of May 23, but still trailing behind the average 85% recovery levels of air traffic between Singapore and the rest of the world. As such, we expect China, being an important source market, to be a key driver of further air travel recovery of Singapore and the region.

Subdued air cargo outlook in 2H23.

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Roy Chen CFA UOB Kay Hian Research | https://research.uobkayhian.com/ 2023-07-10 SGinvestors.io

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