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SIA seen gaining from weaker Singdollar

Morgan Stanley thinks SIA could benefit from stronger inbound tourism from Asean countries amid weak consumer sentiment.


SINGAPORE Airlines is expected to benefit from the weaker Singapore dollar following the Monetary Authority of Singapore's surprise easing, as it should boost visitor arrivals as well as bolster yields and loads.

"We think that a weaker Singapore dollar is likely to lift yields for SIA, which has been a bugbear amid fuel benefit pass-through and a robust Singapore dollar," said Morgan Stanley analysts Daniel Lau and Edward Xu in a note on Thursday.

"In addition, we think that SIA could benefit from stronger inbound tourism from Asean countries, which has seen a decline in 2015 (-6 per cent) amid weak consumer sentiments and hurt by a strong Singapore dollar."

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Last year, visitor arrivals in Singapore edged up 0.9 per cent year on year to 15.2 million but tourism receipts sank 6.8 per cent to S$22 billion - due to lower volumes of incoming business travellers who typically spend more than leisure travellers.

In particular, arrivals declined from markets such as Indonesia, Australia and Malaysia, partly due to the stronger Singdollar in comparison to regional currencies.

According to the Morgan Stanley analysts, about 40 per cent of the airline's revenue is denominated in currencies such as the greenback, Australian dollar, the yen, the pound and the euro. Some 11 per cent is denominated in regional currencies such as the rupiah, the ringgit, the baht, the rupee and the yuan.

As a result, yields - which are under pressure due to competition from the Gulf carriers - should also get a boost from translation effects. They estimate that a one per cent depreciation in the Singdollar would translate to a 0.5 per cent increase in top line for SIA.

On the other hand, the depreciation of the Singdollar against the greenback will also mean cost pressures, since about half the group's costs are in US dollars; a one per cent drop in the Singdollar should lead to a 0.53 per cent rise in operating costs.

Nonetheless, they cited SIA as their top pick of the sector and have a price target of S$14.25 on the counter.

Other upsides include unwinding hedges that were locked in above the current spot rate, cheaper jet fuel and higher passenger carriage this year.

In the stock market, SIA shares closed at S$11.46, up six cents.