CITI Research is expecting Singapore Airlines : C6L 0%’ (SIA) share price to remain under pressure heading into the final quarter of its financial year. It noted that the national flag carrier’s unit costs, excluding fuel, are “on the way up” in line with management guidance.

In a report on Wednesday (Mar 6), the research house downgraded its call on the stock to “neutral” from “buy” while slashing its target price to S$6.63 from S$7.72.

The move came after SIA in February reported a set of Q3 financials that fell short of street estimates. 

Citing the management’s “underwhelming” guidance on unit costs excluding fuel and “disappointing” cargo pricing, the research house cut SIA’s FY2024 to FY2026 core earnings estimates as well as revenue forecasts to account for softer cargo pricing assumptions.

Analyst Kaseedit Choonnawat highlighted that the new estimates are 10 to 39 per cent below consensus.

The lower target price stood at a lower 1.25 times price-to-book value multiple based on Citi’s FY2025 estimates, against the research house’s 10 per cent core return-on-equity (ROE) estimate.

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This was down from the previous target price’s 1.4 times multiple against a 14 per cent core ROE estimate.

“We expect the stock to remain under pressure heading into (Q4), when staff bonuses are paid and cargo is at a seasonal low,” said Choonnawat.

Excluding fuel, the analyst expects SIA’s cost per available seat kilometre for FY2024 to FY2026 to come in “relatively flat” as upward pressure on costs should be partially offset by efficiency gains. 

The research house lowered its cargo pricing estimates over the period to account for back-tracking as well as the trans-shipment nature of SIA’s cargo, which involves transporting cargo from one vessel to another while in transit.

Choonnawat is nonetheless positive on the group’s passenger prospects for mid-2024 in view of leisure events in Singapore, the upcoming Paris Olympics and the group’s dominance among Asean carriers.

Based on Citi’s ticket price booking exercises, he observed “anecdotal evidence” that ticket prices of SIA’s peers support the research house’s view of “mild pricing normalisation” going into FY2025.

He forecasts the group’s passenger yield to normalise at 23 per cent above pre-Covid levels in FY2024, 16 per cent in FY2025 and 10 per cent in FY2026.

Shares of SIA were trading 2.7 per cent or S$0.17 higher at S$6.53 as at 2.51 pm on Wednesday.