Broker’s take: CGS-CIMB upgrades SIA to ‘add’ on strong H2 earnings forecasts
Michelle Zhu
AHEAD of Singapore Airlines ’ (SIA) third-quarter results update due on Feb 20, CGS-CIMB has upgraded its call on the national flag carrier to “add” from “reduce” while forecasting third-quarter profit after taxes and minority interest (Patmi) of about S$800 million, followed by Patmi of S$700 million in Q4.
The research house’s core net profit forecasts for SIA were raised by 48 to 86 per cent over FY2024 to FY2026 to account for lower jet fuel consumption estimates, all-in jet fuel price assumptions, and higher cargo yield assumptions.
Consequently, SIA’s price target was lifted to S$6.91 from S$5.47 previously to factor in increased core earnings per share (EPS) along with a price-to-book multiple of 1.2 times.
This is two standard deviation points above the stock’s mean and slightly higher than the previous valuation multiple of 1.15 times, noted analyst Raymond Yap in a report on Tuesday (Jan 9).
Yap said he anticipates SIA’s strong Q3 performance to be driven by robust passenger load factor data over October and November 2023, which he expects to rise even further in December due to the year-end holiday travel peak season.
CGS-CIMB’s forecast of a “bumper” S$0.40 final dividend per share implies a 6.2 per cent yield, which Yap said is “very good for a six-month holding period”.
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He also expects the group’s December 2023 cargo load factor (CLF) to rise to 59 per cent due to robust e-commerce trade between China, Europe and the US amid the seasonal peak.
“What surprised us positively was SIA’s strong cargo (performance) in the closing months of 2023,” said Yap, citing higher freight tonne kilometre and increased CLF percentage over the October-November 2023 period compared to prior months.
In Yap’s view, SIA’s results could be further buoyed by lower jet fuel prices, which recently declined from their peak in mid-September 2023.
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“We estimate that SIA’s all-in jet fuel price for Q3 FY2024 may still increase to US$114 per barrel (bbl) from Q2 FY2024’s US$98/bbl, assuming a one-month contractual price lag compared to spot prices – but may fall to about US$100/bbl in Q4 FY2024 if current jet fuel spot prices remain at US$100/bbl for the rest of this quarter.”
Shares of SIA were trading 1.2 per cent or 0.1 per cent higher at S$6.51 as at 4.17pm on Wednesday.
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