Sum and Yong note that SIA’s international passenger traffic has been recovering at a faster clip than its peers since Singapore launched its first Vaccinated Travel Lane (VTL) in September 2021.
“We expect this trend to persist and envisage the group’s passenger traffic hitting 72% and 97% of 2019 levels by end-FY2023 and end-FY2024, respectively, supported by Singapore’s new Vaccinated Travel Framework and the synchronised reopening of borders in the region and other key markets.”
Furthermore, the “colossal” pent-up travel demand and the gradual restoration of passenger capacity will support passenger yields, they say.
At the same time, cargo yields should remain high in the near-term due to prolonged widespread supply chain disruptions.
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As for its share price, the analysts say that SIA’s valuation may be above its historical mean, but still cheaper than competitors in the region.
The airline is currently priced at a FY2023 P/B ratio of 1.2x, at around 1 standard deviation (SD) of its 10-year mean.
“We believe that its relatively promising recovery trajectory and medium-term outlook justify a multiple that is on par with peers,” Sum and Yong write.
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The analysts also acknowledge that they have earnings estimates above the consensus, as they expect SIA’s passenger volumes to normalise at a faster rate and assume higher passenger and cargo yields.
However, some key risks to their view include repeated Covid-19 episodes impeding the recovery in air travel, as well as passenger and cargo yields moderating to pre-pandemic levels earlier than expected.
As of 3.37pm, shares of SIA were trading at $5.50, with a FY2023 P/E ratio of 24.3 and dividend yield of 1.2%,
