Flag carrier Singapore Airlines (SIA) decisively achieved a turnaround in 2022, erasing the red ink from 2020 and 2021 as travel resumes with a vengeance for most parts of the world.
The airline marked its comeback with a string of earnings and operational records when it reported its 1HFY2023 ended September 2022 numbers, reporting record earnings of $927 million from a loss of $837 million a year earlier.
SIA’s share price has risen to its highest point since March 2021, at $5.88 as at Jan 13 and valuing the company at $17.45 billion.
Despite the bullish numbers, Lee Lik Hsin, SIA’s executive vice-president of commercial, is quick to temper expectations. Yields have moderated slightly towards the end of 2022 and are expected to be the same way into the period after the 2023 Lunar New Year as competitors take off in a more significant way too. “As we move into next year, more airlines will be able to put back capacity. We would not expect yields to stay at the same elevated levels that they were at for 2022,” he explains.
Nonetheless, analysts like UOB Kay Hian’s Roy Chen is keeping his “hold” rating on SIA but with a slightly higher target price of $5.40 from $5.35 earlier, premised on China’s border reopening, which started on Jan 8.
In his Jan 6 report, Chen says that China’s reopening to international travellers looks set to “inject new momentum” into the recovery of the sector, noting that Singapore is also said to be among the top 10 tourism destinations for mainland Chinese, according to travel site Trip.com.
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In his Jan 17 note, DBS Group Research’s Paul Yong kept his “buy” and $6.60 target price after SIA announced a record-high passenger load factor of 89.7% in December 2022, versus 46.5% in December 2021.
The higher-than-expected numbers reflect “the sustained momentum in travel demand and the resilience of consumer spending, hence yields could come in stronger than anticipated,” says Yong.
The increase was especially so for routes to East Asia, with Hong Kong, Japan and Taiwan dropping most restrictions. “China’s reopening should provide the next leg of growth for the region, although we only anticipate a sharp rebound in the second quarter of 2023,” he adds.
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“Given China’s faster-than-expected reopening and Singapore’s accommodative entry policies, we now expect a steeper recovery trajectory of the Singapore aviation sector than we have previously projected,” he writes.
Chen expects SIA to see a more “meaningful” recovery of air travel volume to and from China as flight frequencies continue to increase. To reflect these expectations, he has raised his FY2023 and FY2024 earnings forecasts for SIA by 1.3% and 4.6%, respectively.
Chen notes that the airline’s current valuation is “slightly stretched” at 1.3 standard deviations above its historical mean. “We believe [the] consensus’ FY2023 earnings forecast of $1.67 billion (28% lower than our forecast of $2.33 billion) is conservative and due for positive surprises in the upcoming 3QFY2023 result release.”
While China will likely be the catalyst for SIA this year, the airline has moved decisively ahead to eke out growth elsewhere. With its finances strengthening, the airline has become more confident to resume longer-term growth plans. In November, it announced plans to spend up to $1.24 billion for a 25.1% stake in an enlarged Air India controlled by its Indian joint venture partner, the Tata conglomerate. Analysts note that although Air India is loss-making for now, its long-term growth potential cannot be ignored. — Lim Hui Jie
