Citi Research has turned bullish on Singapore Airlines (SIA) as analysts Kaseedit Choonnawat, Amy Han and Eric Lau upgraded their call to “buy” from “sell”. The upgrade comes as the analysts expect the airline to provide a “strong guidance” into the summer of 2024 at its results briefing for the 3QFY2023/2024 ended Dec 31, 2023, on Feb 21. SIA will release its results for the quarter after trading hours on Feb 20. At the same time, the analysts have opened an upside 30-day catalyst watch ahead of SIA’s results announcement.
In their Feb 11 report, the analysts note that the airline’s passenger yield upside is expected to last till summer although they have limited visibility going into the year-end for 2024.
That said, they have increased their yield assumption for FY2024, FY2025 and FY2026 to 23%, 16% and 10% respectively above SIA’s pre-Covid-19 levels, from 22%, 13% and 7% previously.
“While our pax yield revisions appear counterintuitive against industry’s incremental supply and anecdotal evidence from early reopener’s demand softness i.e. Turkish Airlines’ negative y-o-y in load factor, the uplifts of ticket price curves are inclining towards SIA’s demand strength on its key routes rather than industry, as SIA’s ticket price premiums versus non-stop alternatives are visible up to July 2024 which was not the case a year ago,” the analysts write in their Feb 11 report.
Based on their latest exercise on SIA’s forward ticket price curves, the analysts found that prices now cover 52% of the airline’s available seat kilometres (ASK) capacity for March to September 2024, which is up by 47% and 53% for business and economy classes respectively, compared to their ticket bookings exercise in March 2023.
In their view, the uplifts in the forward ticket price curves point to passenger yield and earnings upsides for FY2025.
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The analysts also see potential upside to SIA’s cargo yield, as they adjust their yield assumptions for FY2024, FY2025 and FY2026 to 36%, 23% and 16% above its pre-Covid-19 levels, up from 36%, 9% and 3% before.
“A combination of sequential demand recovery, China-US’ relatively slow belly-space ramp-up, and potential spillover from Red Sea disruptions lead to our slower cargo yield normalization view,” the analysts add.
With the upside factors in mind, the analysts have also increased their FY2024, FY2025 and FY2026 earnings estimates by 4%, 124% and 167% respectively, sitting about 9%, 46% and 47% above the consensus over the same period. This is mainly to factor in higher overall unit revenue by 1.5%, 6.7% and 6.3% respectively, which is further helped by lower effective jet fuel price of about 7% in FY2025 to FY2026.
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As a result, their target price is also raised to $7.72 from $5.74 based on 1.4 times SIA’s FY2025 P/BV in relation to 14% of its prospective core return on equity (ROE) – from 1.05 times FY2025 P/BV versus an estimated core ROE of 6.3%.
Shares in SIA closed 29 cents higher or 4.27% up at $7.09 on Feb 13.
