The stabilisation is from overall demand strength, while SIA’s premium mix is also relatively stable.
With this, he has increased the group’s FY2026, FY2027 and FY2028 revenue by 1.2%, 1.1% and 0.4% respectively, with assumption calibrations leading to a 14.7%, 19.4% and 5.5% increase in core earnings over the period.
Choonawat writes: “While our revised earnings sit 12%, 9% and 9% above street, we view SIA's current 1.25 times FY2027 price-to-book value ratio (P/BV) as too pricey in relation to its return on equity (ROE) and hence maintain our ‘sell’ rating, primarily on valuation.”
The analyst’s $6.28 target is based on a 1.15 times FY2027 P/BV in relation to 7% core ROE, which he notes is “broadly in-line” with the historical trading relationship between these two variables.
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Key downside risks noted by Choonawat that could impede the stock from reaching his target price include a weak macro outlook, disappointing passenger demand as well as ticket and cargo pricing strength.
Conversely, upside risks include the successful restructuring of Air India leading to incremental associate income versus his breakeven assumption, successful commercial collaborations with partner airlines that were deemed competitors including Asean flag carriers and Middle Eastern airlines leading to lower competition and consensus earnings upgrades and finally, stickiness of a premiumisation trend among passengers willing to pay ticket price premiums on SIA as a product leader.
As at 1.36 pm, shares in SIAare trading one cent higher at $6.81.
