SIA, Sats climb as vaccine hopes spur rally
Singapore
TRAVEL and tourism-related stocks rose on Tuesday, as positive news from Moderna's Covid-19 vaccine trials boosted investor confidence.
Singapore Airlines' (SIA) shares closed at S$4.06, jumping 4.91 per cent or S$0.19, with 26 million shares changing hands.
Meanwhile, shares of ground handler Sats climbed 2.76 per cent or S$0.11 to hit an eight-month high of S$4.10 on 9.8 million shares traded; the last time the counter reached this level was in March.
DBS Group Research has raised its target price (TP) on Sats to S$4.50, up from S$4.02 previously, and raised its earnings forecast for Sats' FY2022-23 by 3-5 per cent.
In a research note on Tuesday, DBS analysts Alfie Yeo and Andy Sim cited Sats as a recovery play on vaccine development and deployment. "We assume international air travel to recover to pre-Covid-19 levels in 2022, and expect the stock to re-rate and normalise ahead of vaccine approval and deployment in 2021," they said.
The analysts added that vaccine newsflow has been positive, with Pfi-zer/BioNTech and Moderna reporting 90 per cent and 94.5 per cent efficacy respectively in their initial Phase Three trial observations recently. Mr Yeo and Mr Sim anticipate at least one effective vaccine to be commercialised next year. As such, they have accelerated their recovery assumptions, with faster-than-expected mass travel and normalisation kicking in.
Singapore's 10 most traded transport-related stocks have gained 11 per cent this month, according to data from the Singapore Exchange (SGX). Sats has been the strongest gainer among these counters, advancing 34 per cent over the past 11 sessions, with S$68 million of net institutional inflow.
SIA, meanwhile, saw net institutional inflows of S$25 million month-to-date - which have helped push the stock up 14.2 per cent.
CGS-CIMB has upgraded its rating on SIA to "add" from "hold", and raised its TP on the carrier to S$4.57 from S$3.46 previously.
"We upgrade our recommendation on SIA to incorporate a better risk-reward balance from three perspectives - SIA's balance sheet strength, the Singapore government's efforts to gradually open its borders, and the potential introduction of Covid-19 vaccines sometime during 2021," wrote CGS-CIMB analyst Raymond Yap in a research note on Monday.
He added that downside surprises are limited, with aircraft assets already impaired and its equity capital raising completed.
On Tuesday, SIA announced that it has upsized its multicurrency medium-term note programme limit to S$10 billion from S$5 billion previously. Net proceeds will be used for general corporate or working capital purposes, or other such purpose(s) as may be specified in the relevant pricing supplement, SIA noted.
K Ajith, director of Asia transport research at UOB Kay Hian, told The Business Times that he reckons this would be a cheaper source of funding than the mandatory convertible bonds (MCBs) it has the option to issue, though the rates are not specified. But he said the quantum of S$10 billion is higher than expected. "This is negative to shareholders," Mr Ajith said, as SIA's gearing will increase and the group could incur a huge amount of funding and interest costs.
Just last week, SIA priced an S$850 million five-year convertible bond offering at 1.625 per cent. For the current financial year, SIA has raised S$12.2 billion. This includes S$8.8 billion from a rights issue, S$2 billion from secured financing and more than S$500 million through new committed lines of credit and a short-term unsecured loan. It also retains the option of raising up to another S$6.2 billion in additional MCBs, which it can exercise by July 2021.
Analysts have also turned more upbeat on Genting Singapore, which this week announced a quarter-on-quarter rebound in its earnings.
DBS has upgraded Genting Singapore to a "buy", from "hold" previously, raising its TP to S$1 from S$0.70. Genting Singapore is poised for the eventual return of tourism, and also has an "undemanding" valuation with a 3.1 per cent dividend yield, DBS said on Tuesday. "Genting Singapore continues to trade at an unjustifiably steep discount to its regional peers," said analyst Jason Sum.
CGS-CIMB, meanwhile, reiterated its "add" rating while upping its TP to S$0.86 from S$0.73. The brokerage predicted that prospects could improve further in Q4 with Singapore gradually reopening and the government encouraging domestic tourism.
The company's further recovery hinges on the return of tourists, the timeline for which is still uncertain. CGS-CIMB believes, however, that Genting Singapore's robust balance sheet will tide it through the tough times.
Genting Singapore shares closed at 82 Singapore cents on Tuesday, up 1.5 cents or 1.86 per cent.
