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Brokers' take: DBS Group Research downgrades SIA to 'hold'

Monday, November 7, 2016 - 15:47

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DBS Group Research has downgraded Singapore Airlines (SIA) from "buy" to "hold" following the release of the airline's Q2 FY16/17 results last week, citing a patchy outlook for the next few quarters.

DBS Group Research has downgraded Singapore Airlines (SIA) from "buy" to "hold" following the release of the airline's Q2 FY16/17 results last week, citing a patchy outlook for the next few quarters.

"We see weaker yields and higher operating costs eroding most or all the net fuel cost savings in the next few quarters ahead," analyst Paul Yong wrote in a research note.

He added: "Amid a continued weak demand environment and sustained non-fuel cost pressures, we see the outlook for SIA's operating earnings to be sluggish over the next few quarters."

DBS Group Research has a 12-month price target of S$10.20, down from S$12.60 previously.

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For Q2 FY16/17, SIA's net profit plunged nearly 70 per cent year on year to S$64.9 million from a year ago, while revenue was 5 per cent lower at S$3.65 billion.

While fuel costs fell by some 22 per cent year-on-year, weak demand, lower yields and higher non-fuel costs ate into fuel cost savings, Mr Yong highlighted.

He also noted that jet fuel has stabilised at between US$55 to US$60 a barrel in the last few months. "With Opec having moved recently to try and cut production and shore up crude oil prices, the worst should be over for oil prices."

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