CGS-CIMB lowers SIA’s TP to $5.75 as multiple risks potentially clouding strong revenue trend

CGS-CIMB Research analyst Raymond Yap has kept a “hold” rating on Singapore Airlines (SIA) as he sees the airline’s high airfares, elevated market share and strong demand to be offset by the risks of high oil prices.

In addition, Yap has lowered his target price of $5.75 from $5.92 previously, after cutting his earnings per share (EPS) estimates for the FY2023 to FY2024 ending March and applying a lower FY2023 P/BV of 0.95x, which is SIA’s mean since 2011.

The lowered EPS estimates were due to the analyst’s higher price assumptions for spot jet fuel, from US$120 ($167.15) per barrel to US$135 a barrel for the FY2023, and from US$95 per barrel to US$110 per barrel for the FY2024.

“We have also assumed higher yields to partially compensate for the higher fuel cost assumptions,” Yap writes in his June 13 report.

Overseas discretionary leisure travel could suffer

In light of the high global inflation rates from higher food and fuel prices, along with higher global interest rates eating into consumers’ spending power, the analyst posits that overseas discretionary leisure travel could suffer in the future.

With a global recession in the future a rising possibility, compounded by the event that consumer spending possibly falling, air cargo demand may also decline as well.

“As SIA’s competitors ramp up their capacity deployment in the future, SIA’s heightened market share could fall back down to 2019 averages,” says Yap. “This may cause the current high airfares to moderate, even if jet fuel price levels remain elevated.”

Source : https://www.theedgesingapore.com/amp/capital/brokers-calls/cgs-cimb-lowers-sias-tp-575-multiple-risks-potentially-clouding-strong