DBS Group Research analyst Paul Yong has maintained his “hold” call on Singapore Airlines (SIA) with a significantly reduced target price of $3.75 from $6.60 previously.
Yong says the new target price is based on a 0.8x P/B against a projected return on equity (ROE) of 2.7% for FY22F.
“Our book value per share calculations assume the MCBs are debt rather than equity as we see SIA redeeming the MCBs within 10 years,” he says in a July 29 report.
SIA reported a $1.12 billion net loss in its 1Q20/21 business update on July 29, due to “deteriorating” market conditions due to the spread of the Covid-19 pandemic.
Following that, Yong believes that international air travel demand could gradually recover to pre-Covid-19 levels in mid-2021.
SIA, on the other hand, believes that passenger capacity may take around two to four levels to return to levels before the pandemic.
To this end, Yong has projected a $2.2 billion loss for the airline in FY21F, and a $470 million rebound in FY22 on cautious optimism that a vaccine can be developed by early 2021.
He also estimates losses per share of 74.2 cents for FY21F.
Yong also believes that SIA has enough in its balance sheet to “weather the storm” following its $8.8 billion fund-raising exercise earlier in 2020.
“Following a $8.8bn fund-raising exercise, SIA's net debt to equity ratio is projected to drop from 0.9x as at end FY20 to just 0.1x as at end FY21F (assuming the mandatory convertible bonds (MCBs) are accounted for as equity), which provides SIA with ample liquidity to ride through the current crisis,” he says.
As at 2.31pm, shares in SIA are changing hands 13 cents lower, or 3.7% down, at $3.40.
