Singapore Airlines (SIA) - DBS Research 2019-01-04: Timely Boost From Lower Fuel Prices


Singapore Airlines (SIA) - Timely Boost From Lower Fuel Prices

  • Raising Singapore Airlines’ FY20F and FY21F earnings by 9% and 12% respectively after factoring in lower jet fuel prices.
  • There could be further earnings upside if oil prices continue to stay low; every US$1 decrease in average jet fuel price will raise Singapore Airlines’ FY20F earnings by 2.3%.
  • Current valuation at just below 0.8x P/B (at -1.5 SD of its 10-year average) is an attractive entry level.
  • Upgrade to BUY, Target Price S$11 (0.9x FYE Mar ‘20F P/B).

Upgrade to BUY with Target Price of S$11.

  • With the collapse of crude oil prices in November 2018, the market now expects the average cost of fuel to be lower in 2019F and 2020F. We assume an average jet fuel price (FOB Singapore) of US$82 per barrel in 2019F and US$80 per barrel in 2020F, compared to c. US$85 per barrel in 2018. Hence, even as yield improvement remains elusive, we project SINGAPORE AIRLINES LTD (SGX:C6L)’s net earnings to improve by 25% y-o-y to S$930m in FYE Mar ’20.
  • Our FY20F and FY21F earnings forecasts are 14.4% and 27.4% higher than consensus, and with jet fuel prices currently at US$65/bbl versus our assumption of US$82/bbl for FY20F, there could be further upside to Singapore Airlines’ earnings if oil prices stay low.

Where We Differ:

  • We raise our FY19F, FY20F and FY21F estimates by 6%, 9% and 12% respectively to reflect our lower fuel cost assumption.

Potential Catalysts:

  • SIA’s share price should re-rate if oil prices continue to remain low and earnings recover as expected.

Valuations ripe for entry.

  • With earnings now poised to turnaround on the back of lower fuel costs, we see current share price as attractive for investors to buy into Singapore Airlines’ earnings recovery story.


  • Raising Target Price to S$11 based on 0.9x FY20 P/BV, against a projected ROE of 6.5% for FY20F.

Key Risks to Our View:

  • Vulnerable to demand shocks and/or fuel price increase.

Paul YONG CFA DBS Group Research | https://www.dbsvickers.com/ 2019-01-04
SGX Stock Analyst Report BUY UPGRADE HOLD 11.00 UP 10.200