Brokers’ take: DBS raises SIA’s target price on brighter earnings prospects

SINGAPORE Airlines (SIA)‘s valuation does not adequately reflect its brighter earnings prospects, said DBS Group Research on Friday (Jan 20).

“We believe that its relatively promising recovery trajectory and medium-term outlook justify a multiple that is at least on par with its peers,” the research team added. 

The national carrier is currently priced at a discount to its regional peers. It’s priced at 4.7 times FY2024 enterprise value/Ebitda (earnings before interest, taxes, depreciation and amortisation), which is 0.5 standard deviation below its five-year average prior to the pandemic.

The research team raised SIA’s target price to S$6.80 from S$6.60, implying a potential upside of 16.2 per cent from the counter’s last trading price of S$5.85 as at 10.53 am on Friday. Shares of SIA were trading S$0.03 or 0.5 per cent higher at the time. It maintains its “buy” call on the stock. 

DBS anticipates passenger traffic to normalise at a quicker pace on China’s earlier-than-anticipated reopening. The greater China market accounted for some 15 per cent of total passenger revenue pre-Covid.

Passenger volumes are expected to reach pre-pandemic levels in the third quarter instead of Q4 as previously estimated. DBS projected the recovery in volumes to lift SIA’s FY2024 and FY2025 net profit by 11 per cent and 8 per cent, respectively. 

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SIA Group passenger traffic up 11.7% in December on travel relaxations

Brokers’ take: CGS-CIMB downgrades SIA to ‘hold’ on share price rerating

The analysts further highlighted that the recovery in passenger revenue will mitigate the adverse impacts on SIA’s cargo segment.

DBS’ views contrasted with CGS-CIMB’s, which downgraded SIA to “hold” from “add” on Jan 16 as the brokerage no longer viewed the airline’s upside as compelling despite its strong dividends.

The recent rerating in SIA’s share price also reached a level which is no longer above CGS-CIMB’s 10 per cent threshold for an “add” recommendation. Its target price on the counter remained unchanged at S$5.97.