SINGAPORE (Jan 25): Maybank Kim Eng is upgrading Singapore Airlines to “buy” given its revised earnings forecasts are now above consensus.
Maybank is raising FY19-21E earnings by 33%, 37% and 17% respectively to factor in lower fuel price, better yield outlook, its latest traffic-growth plans and USD/SGD estimates.
“Maybank thinks the market has not priced in SIA’s operational resilience and the benefit of a lower fuel-price environment,” says analyst Mohshin Aziz in a Thursday report.
“Furthermore, we are optimistic its efforts to consolidate operations will yield cost reductions. Its dividend yields of more than 4% are also attractive and above peer average,” adds Aziz.
To recap, overall traffic -- passenger plus cargo -- in 3Q19 grew 3.9% y-o-y. Load factor receded by 0.3 ppt y-o-y to 76.1%, although this is still considered high by historical comparison.
Aziz believes management’s strategy to consolidate Silkair into the parent airline is a good move as it creates a clear demarcation between the premium and budget segments.
This comes as traffic growth momentum is expected to slow going forward due to market maturity and based on management’s latest growth plans.
Meanwhile, SIA has hedged up to 46% of its fuel needs up to FY23 at reasonable levels (US$57-64/bbl Brent), which provides some cost stability and lowers operating risk.
“Upgrade to ‘buy’ from ‘hold’ and raise target price 14% to $11.20 as we raise P/B multiple to the historical average of 0.94 from 1SD below due to lower risks to growth,” says Aziz.
As at 4.27pm, shares in SIA are up a cent to $9.75.
