Maybank Securities has initiated “hold” on Singapore Airlines C6L (SIA) with a target price of $7.10, based on 1.34x its FY2025 price to book ratio, or 1-standard deviation above its historical mean.
In his July 12 note, analyst Eric Ong forecasts the carrier’s FY2025 to FY2027 net profits to progressively decline. However, absolute earnings are still projected to remain at much higher levels compared to its pre-pandemic years, given strong air travel demand.
“The demand for air travel is likely to remain firm in 1QFY2025, buttressed by a strong pick up in forward bookings to North Asia and Southeast Asia. But passenger yields may moderate further as other airlines increase capacity,” he adds.
For its low-cost subsidiary Scoot, operating margins may be relatively more resilient versus full-service carriers due to cost advantages, Ong notes.
For cargo, demand and load factor strengthened towards the end of FY2024 given healthy e-commerce flows, growing segments such as perishables and events, as well as a shift to air freight by some shippers due to security concerns in the Red Sea region.
While cargo yield has held above pre-pandemic levels so far, it remains under downward pressure as industry bellyhold capacity increases with the resumption of more passenger flights. SIA is closely monitoring key trade lanes to ensure the competitiveness of its cargo services, Ong points out.
See also: OCBC, citing potential recovery, initiates coverage on Nanofilm with tentative 'hold' call
On March 5, the proposed merger of Air India and Vistara was approved by the Competition and Consumer Commission of Singapore. The deal is now pending foreign direct investment and other regulatory approvals.
Upon completion, SIA will have a 25.1% stake in an enlarged entity with a significant presence in all key Indian airline market segments, including domestic, international, full service and low cost. This will bolster its multi-hub strategy and allow it to continue participating directly in this huge and fast-growing aviation market, Ong highlights.
Maybank’s FY2025-FY2027 EPS are 3-23% higher than consensus as the analyst believes the ongoing supply chain issues will impede SIA’s competitors from quickly ramping up their flights in the next few years.
As at 10.05am, shares in SIA are trading 2 cents higher or 0.28% up at $7.05.
