Brokers’ take: OCBC raises SIA’s fair value to S$7.18 on potentially higher-for-longer travel demand
Samuel Oh
OCBC Investment Research has increased its fair value estimate on Singapore Airlines (SIA) from S$6.50 to S$7.18, to factor in a slower pace of moderation in passenger yields in FY2024.
This is due to potential upside from near-term travel demand recovery, as well as the company’s strong brand image which lends it resilience against normalising demand and prices, said analyst Ada Lim in a report on Monday (Jun 5).
The revised fair value is based on a higher 1.1 times price-to-book ratio versus one times previously. It is pegged to one standard deviation above SIA’s five-year historical average of 0.98 times.
In Lim’s view, demand for air travel would remain strong for a longer period of time due to easing inflation and falling jet fuel prices.
She also sees sustained travel demand, supported by the upcoming peak travel season, along with a “more meaningful recovery” in outbound travel from China in the second half of 2023.
Such factors would benefit airlines including SIA, said Lim, adding that the carrier’s “commitment to service quality and strong brand image” would put it in good stead to differentiate itself from competitors, as well as defend its market share when demand and prices begin to normalise.
The analyst also expects the airline to benefit from an expanded network connectivity as a result of its recent joint venture with Garuda Indonesia.
While OCBC remains positive on SIA’s prospects, it cautions that much of the airline’s recovery has already been priced in, given that the stock has rallied about 20.2 per cent in the year to date.
It also foresees a potential slowdown in SIA’s recovery momentum later this year, in view of a more competitive regional landscape and recessionary outlook.
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OCBC therefore retained its “hold” rating on the stock, as it believes the group’s risk-reward profile has “become more balanced”.
Shares of SIA rose 1.5 per cent or S$0.10 to S$6.90 as at 2.17 pm on Tuesday.
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