What comes next for SIA?
In this issue:
- Singapore’s flag carrier sets out initial payouts
- A big IPO looks set to land in Malaysia
Greetings dear reader,
Last week’s headline-maker was Singapore Airlines (SIA), which on Jun 10 sent out offers of compensation to passengers who were injured during a recent turbulent flight.
On top of a full fare refund and any compensation required by regulations, SIA will give US$10,000 to those who suffered minor injuries and US$25,000 to those with serious injuries.
Passengers who sustained serious injuries were also invited to “discuss a compensation offer to meet each of their specific circumstances when they feel well and ready to do so”.
What does this mean for shareholders of SIA? I’ll highlight some important points made by my colleagues Ben Paul and Leslie Yee last week, as well as add some of my own.
I think it’s also time investors pay a little attention to stocks in Malaysia. More on that below.
What’s happening?
Going by its Facebook post, SIA’s support for affected passengers has been comprehensive. The airline has also been covering the medical expenses of injured passengers, and “arranging for their family members and loved ones to fly up to Bangkok where requested”.
The affected flight, SQ321, was due to land in Singapore but was diverted to Bangkok after the turbulence hit.
The airline has clearly prepared well for how to communicate with customers in a crisis, and understands the value of monetary assistance.
Passengers were sent e-mails with compensation offers, and given information about how to proceed with their claims. They were also given S$1,000 in cash when they left Bangkok.
Why it matters?
As my colleague Leslie pointed out in a column last week, crisis management is critical. “Missteps can be costly and could quickly undo years of investment in brand building, ensuring high service standards, and championing safety as well as reliability,” Leslie wrote.
The adequate preparations for crisis communications could also be a signal to shareholders that SIA has adequately prepared for crisis payments. SIA told The Business Times that it has a “comprehensive insurance policy in place that covers such incidents”.
SIA’s share price since the incident suggests the market has confidence in management. News of the incident did not begin to filter through till after the Singapore stock market closed on May 21. May 22 was a public holiday. The stock closed 0.7 per cent lower on May 23, at S$6.71, and fell again on May 24 to close at S$6.68.
The counter has rebounded, however, closing on Friday last week (Jun 14) at S$6.73. It had closed at S$6.76 before the incident.
So, is the worst over for the stock? Not quite, I think.
First, compensation negotiation is likely to continue making headlines. Carter Capner Law, an Australia-based firm specialising in personal injury, is advising passengers to seek legal advice because an international legal convention may entitle them to “significantly more compensation”.
“Our team, which includes very experienced airline captains, believes there is evidence to suggest that the aircraft flew through the top of a thunderstorm or in proximity to one as it passed over an area notorious for thunderstorm activity in the Inter Tropical Convergence Zone,” said the law firm’s director Peter Carter.
This is speculation, of course, but is illustrative of the short-term risk to the stock price.
Second, the aviation business is clearly becoming tougher. Some reports have suggested turbulence is worsening because of climate change. Other climate-related impacts on air travel include:
- Hotter temperatures making it tougher for flights to take off
- An increased risk of lightning strikes
- Longer flight times due to changing wind patterns
Third, SIA is heading into its next financial year from a high base. For two consecutive years – FY2023 ended March and FY2024 – it has reported record revenues and profits.
My colleague Ben wrote in a column last week: “Looking ahead, it seems more than likely that SIA’s profitability will gradually wane – as the post-pandemic surge in demand for travel eases and other carriers add capacity. The big question is whether this softening outlook is adequately reflected in its share price.”
SIA’s importance to Singapore’s economy is significant, and its reputation in the airline industry formidable. Neither of those are sufficient reasons to bet big on the stock, though.
The big number: RM2.1 billion
That’s the reported valuation for Malaysian palm oil producer Johor Plantations Group, which is said to be seeking an IPO on the Malaysian bourse. Bloomberg data shows the listing is on track to be the country’s largest in two years.
The IPO is the latest sign that Malaysia’s stock market is looking up. The benchmark FTSE Bursa Malaysia KLCI is up some 16 per cent in the last 12 months, making it the best performing major South-east Asian stock market benchmark by far.
Singapore’s Straits Times Index is a distant second, up just under 3 per cent.
Malaysia’s macroeconomic conditions could improve as the government has removed diesel subsidies and the central bank weighs new measures to stabilise the ringgit.
On Jun 5, Maybank analyst Wong Chew Hann raised her year-end target for the KLCI to 1,680 points from 1,610. At the time of her report, the KLCI was at 1,597. It closed on Friday at 1,607.32.
Wong said the core earnings of the stocks in Maybank’s coverage universe had increased for the fourth quarter in a row – Q1 earnings were up 20.1 per cent year on year and 13.5 per cent quarter on quarter.
For the first time since Q3 2022, she added, the ratio of earnings misses-to-beats – when compared against Maybank’s forecasts – fell below one. The ratio, now at 0.7, has also been trending down since Q1 2023.
5 big reads
- Crunching the numbers behind Sats’ FY2028 targets INFLIGHT caterer and ground handler Sats has set for itself some ambitious targets, after posting an improved set of financial results for FY2024 to March.
- Stable teams could become greater differentiator in private markets RAPID growth in private markets could put pressure on a long-debated due diligence factor – team stability – and may even become a differentiating factor for general partners (GPs) or fund managers.
- Fake players popping up in Asia’s family office frenzy AS EDOARDO Collevecchio was getting ready to speak at a conference in Singapore, he recognised the family office that employed a fellow panellist. But as they exchanged small talk, Collevecchio noticed something was off – the executive could not answer basic questions about his firm and did not even recognise the name of an owner.
- Money and happiness: a lesson I learnt after 30 years in wealth management MORE money does not always lead to happiness. It was 1999, and I was early in my career. My most unconventional client uttered these words on Dec 28, 1999: “I’ve made enough. I will stop.”
- ‘Door open’ for multiple cuts this year despite Fed’s move to hold rates steady DESPITE the US Federal Reserve dialling back on its forecast for cuts following its latest policy meeting, analysts say that the “door is open” for two cuts this year, with most expecting the first to come as early as September.
