Broker's take: CMC Markets sees potential upside for SIA

SINGAPORE Airlines (SIA) shares have the potential for further upside given their under-performance against the stock prices of regional carriers, Nicholas Teo, market analyst at CMC Markets, said on Wednesday morning.

In his report, Mr Teo showed a chart comparing the stock price performance of SIA against Cathay Pacific Airways, China Southern Airlines and All Nippon Airways.

"A picture paints a thousand words!'' Mr Teo said. "SIA's under-performance is staggering, considering that most of these airlines compete in a similar operating environment, and are valued along the same metrics.''

At 10.20am, SIA was trading around S$11.95 a share, down 11 cents or 0.9 per cent.

Mr Teo noted that a key drag on SIA's most recent earnings report was their continued heavy expense on jet fuel. He said this was due to SIA's fuel-hedging policies which did not allow them to enjoy better margins when oil prices declined in the second half of 2014.

Cathay Pacific has a similarly aggressive hedging policy for jet fuel, while the Chinese airlines are not permitted to hedge their fuel expenses.

"Over time, however, the effects of these hedging contracts should smoothen out, if we assume that the policies remain consistent,'' Mr Teo said.

"With this in mind, could we perhaps see an opportunity for the shares of SIA to play catch up?''