Improving average air freight rates in US dollar terms, as observed by UOB up until February, also bear positive implications for Singapore Airlines’ (SIA) cargo yields – leading the analysts to believe that the group’s cargo losses could narrow in 4Q17.
“SIA’s cargo earnings are more dependent on cargo load factors, and cargo yields. SIA cargo loads rose 1.6ppt in Jan-Feb 17, greater than 3Q’s 0.9ppt improvement,” say the analysts.
However, Ajith and Leong warn that SATS could be impacted as airlines in general begin exercising greater capacity discipline in response to rising fuel prices.
“In 3QFY17, SATS posted 2.2% yoy growth in gateway services revenue on the back of a 8.4% and 3.7% rise in cargo handled and flights handled at Changi respectively. Both cargo and flights handled growth rates in Jan-Feb 17 were less than half of 3Q’s. If the trend persists, we believe there is downside risk to street earnings estimates,” they explain.
See also: UOBKH raises TP on SIA to $6.22, FY2026 earnings to see lift on fuel cost savings
SIA and SATS have been rated “hold” by UOB at target prices of $10.40 and $4.60 respectively.
While the research house recommends to “sell” SIA Engineering at a target price of $3.30, ST Engineering has been rated “buy” with a $3.70 price target.
As at 11.37am, shares of SIA, SATS, SIA Engineering and ST Engineering are trading at $10.21, $4.82, $3.70 and $3.64 respectively.
