SINGAPORE AIRLINES LTD (SGX:C6L)
Singapore Airlines (SIA) - Recovery Will Take Time; Downgrade To FULLY VALUED
- Downgrade SIA to FULLY VALUED as SIA's share price has run ahead of an expected gradual recovery in earnings.
- International air travel should start to recover from 2H21 after mass vaccinations are rolled out in 1H21.
- Expect SIA's losses to narrow in FY22F before turning around in FY23F as demand steadily improves.
- SIA's valuations stretched at over 1x FY22F P/B against projected losses in FY22F and just 2% ROE for FY23F.
International air travel could start to recover more meaningfully from 2H21.
- With many governments planning for a rollout of COVID-19 vaccines in 1H21, we could see international travel beginning to rebound from 2H21, starting from developed markets, assuming the pandemic is under control by then.
Losses to continue but to narrow in FY22F before turning around in FY23F.
- We project Singapore Airlines (SIA, SGX:C6L)’s losses to narrow from S$4.5bn in FY21F to S$130m in FY22F before recovering to a profit of S$318m in FY23F.
Share price has run ahead of fundamentals.
- SIA's share price has increased by over 25% in the last month on positive vaccine development news, however, we believe that at over 1x FY22F P/B with losses likely to continue in the next 12 months, its valuations are now over-extended.
SIA Valuation:
- Downgrade SIA to FULLY VALUED with target price of S$3.60, based on 0.9x FY22F P/BV. Our target price for SIA is based on 0.9x P/BV, which represents -1 SD of the stock’s five-year mean P/BV (Our book value per share calculations assume the MCBs are debt rather than equity as we see SIA redeeming the MCBs within 10 years).
- See SIA Share Price; SIA Target Price; SIA Analyst Reports; SIA Dividend History; SIA Announcements; SIA Latest News.
Where we differ:
- We have pushed back SIA’s traffic recovery trajectory to 67% of pre-COVID-19 levels by end-2021 versus our previous assumption of normalisation by end 2021, given the second infection waves and record high of new COVID-19 cases in Europe and the US and that deployment of any vaccine will take time.
Key Risks to Our View:
- Losses would be extended if travel demand remains substantially subdued for a prolonged period. Upside or downside risk to our forecasts would depend on how quickly COVID-19 is controlled and how fast governments reopen their borders to international air travel.
Paul YONG CFA
DBS Group Research
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Jason SUM
DBS Research
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https://www.dbsvickers.com/
2020-12-14
SGX Stock
Analyst Report
3.600
SAME
3.600
