Kaixiang
2022-03-25

The implementation of the new Vaccinated Travel Framework, otherwise known as reopening, is a positive catalyst for $SINGAPORE AIRLINES LTD(C6L.SI)$. Target price may be in the range of $5.80-$6. 

Looking at pre-pandemic levels, SIA share price has been on a downtrend, having averagedaround $8.50-$9 in the year prior to the Covid-19 breakout. The intense competition from budget airlines, coupled with the constant price war from other regular airlines, put great pressure on SIA's share price. 

Before one gets overly optimistic on the magnitude of VTF on SIA's near-term prospects, it is imperative to look at some key aspects driving share prices: revenue, cost, profit

Revenue - 

SIA has shown that passenger capacity is expected to reach ~51% in Mar 22 while cargo & mail have reached record highs, surpassing pre-Covid levels. With the removal of VTL quota, one can expect that passenger capacity will recover further. While it may not reach pre-pandemic levels (due to some still remaining cautious), it is not unreasonable to expect passenger capacity reaching 60-65%. Cargo & mail will continue to exhibit exceptional growth as e-commerce/online shopping becomes deeply entrenched in everyone's daily lives. 

Cost -

Looking at SIA's cost composition, fuel accounts for approximately 30%. With the current geopolitical conflict, fuel prices are expected tosustain at high prices. This will cause pressureon SIA's margin, especially for passenger travel which tends to be more price elastic (as compared to cargo & mail). Passing on the cost fully to passengers may not be possible. Furthermore, there will be re-training of cabin crewand pilot which will add onto more cost as they return to service. 

Profit - 

Based on the above factors, profits is unlikely to rebound as sharply as expected, due to cost pressures from high fuel cost and demand elasticity of passengers. While we may see cargo & mail continue to fuel the growth but with lesser than expected increase in profits from passengers, it is reasonable to see profits within the a range of 65% compared to pre-pandemic levels. Based on simple estimation, 65% of $9 gives a range of about $5.85. 

What are your thoughts on the aviation industry? Do you see them taking off in this endemic era? [Grin] 

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Comments

  • Moonshot
    2022-03-25
    Moonshot
    With 2.97 Billion of shares outstanding... It will be crazy to reach 50 cents EPS even after 2025 hence anything above $5 should be careful.
  • glowzi
    2022-03-25
    glowzi
    Yes. Although the pandemic impact less in the future. The fuel price will give singapore airline another hit.,
    • YunZ: 
      $$
    • glowziReplyKaixiang: 
      YUP. Consumer is sensitive to the price. CPI is going to rise. After the 3 years pandemic. Their wallet may not be so wealth.
    • Kaixiang: 
      Yes, it certainly will squeeze the margins. Not forgetting most passengers may end up being sensitive to price increase despite the pent up demand
  • riffy
    2022-03-25
    riffy
    Vaccinated Travel is a good new for Singpore' s tourism related sotck.
    • riffyReplyKaixiang: 
      I am optimistic about the economy. I even think the market is too hot now.
    • Kaixiang: 
      Agree! But the recent rally shows extreme optimism too
  • Kaixiang
    2022-03-25
    Kaixiang
    @RDPD富爸穷爸 @wywy @koolgal @SPOT_ON @SR050321 @Wayneqq @HelenJanet @Faizopal @DiAngel : let’s join [Happy]
  • Bellabing
    2022-03-26
    Bellabing

    Everyone's eager to take a break and travel, perhaps a growth when it reopens, but then again, with all the external factors, hmmmmmmmmmm[Blush]  

    • Kaixiang: 
      There’s a lot of pent-up demand for travel as most have not travelled in the last 2 years. Will the geopolitical conflict and rising fuel cost make travelling less appealing? [Thinking]
  • ValuInvestor
    2022-03-25
    ValuInvestor
    No VTLs may increase travel slightly but not much. Remember China is still very much closed.Much of pre pandemic travel arrivals came from China. Also, no VTLs also mean there requirement to take SIA
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