SIA
SINGAPORE AIRLINES LTD
C6L.SI
Singapore Airlines: Committed to interest in Virgin Australia
- Air NZ looking to exit VAH
- SIA increased stake in VAH
- Australasia a key market for SIA
Air NZ may sell its stake in VAH
- Earlier last month, Virgin Australia (VAH) started its review of capital structure and as an initial step, it secured a new 12-month A$425m loan facility with its four major shareholders including Air New Zealand (Air NZ, 25.9%) and Singapore Airlines (SIA, 23.1%).
- However, Air NZ announced late last month that it is now considering partial or full exit from its investment in VAH, currently valued at ~A$338m (7 Apr close).
- SIA also subsequently stated that it is committed to providing its proportion of the shareholder loan to VAH.
- Over the past five years, VAH has transformed from being a pure low-cost carrier to become a more diversified carrier, competing in the same space as the established full service carrier, Qantas, which is also a fierce rival of SIA on inbound and outbound routes from Australia and New Zealand.
SIA showing commitment by increasing stake in VAH
- More recently, SIA increased its stake in VAH from 22.9% to 23.1% through a series of equity swaps, done at a premium to the open market price. While the increase in stake is only 0.2%, we believe the key inference one should draw from these transactions is SIA showing its commitment in its interest in VAH.
- Apart from Europe, Australasia is another key market of SIA, and a majority stake in VAH may help SIA compete more effectively with the existing dominant player – Qantas. Therefore, we do not rule out the possibility of SIA buying over Air NZ’s stake in VAH, but such action will trigger a takeover bid (based on ASX rules).
- In our view, gaining control of VAH could lift SIA’s competitiveness in the Australasia market with a larger presence and network synergy with the main group.
- All said, with nothing confirmed, such possibility remains a speculative view but investors may want to monitor for further corporate actions ahead.
Reiterate BUY
- In our view, the near-term focus for SIA continues to hinge on earnings recovery resulting from cheap jet fuel and a beneficial hedging position for at least FY17.
- Keeping our forecasts unchanged for now, we reiterate BUY on SIA with the same FV of S$12.50.
Eugene Chua
OCBC Securities
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http://www.ocbcresearch.com/
2016-04-11
OCBC Securities
SGX Stock
Analyst Report
12.50
Same
12.50
