DBS Group Research has upgraded Singapore Airlines from “hold” to “buy” with the expectation that the country’s flag carrier is enjoying a recovery in passenger volumes faster than its regional peers.
The pick up started last September after Singapore opened the so-called vaccinated travel lanes last September, which was followed by further easing of rules. “We expect this trend to persist,” write analysts Paul Yong and Jason Sum in their May 17 note.
“Colossal pent-up travel demand and the gradual restoration of passenger capacity will support passenger yields,” add Yong and Sum, who have a new target price of $6.20 from $4.90 previously. The new target price is pegged to 1.3x SIA’s FY2023 and FY2024 book value.
Meanwhile, cargo demand, which has been a lifeline for the airline in the darkest days of the pandemic, should continue to enjoy high yields despite the looming addition of capacity due to prolonged widespread supply chain disruptions.
Right now, SIA is trading at a valuation above its historical mean of around 1.1x FY2023 book value, which is 0.5 sd above its ten-year mean – and a level higher than regional peers.
“We believe that its relatively promising recovery trajectory and medium-term outlook justify a multiple that is on par with its peers,” write Yong and Sum.
SIA will report its FY2022 earnings ended March 31 after market on May 18.
SIA as at 1.30pm traded at $5.29, up 2.52%.
