Singapore Airlines (SIA) - CGS-CIMB Research 2021-05-20: Good Price To Buy For The Eventual Recovery


Singapore Airlines (SIA) - Good Price To Buy For The Eventual Recovery

  • SIA group's FY21 core net loss was 19% wider than our forecast as we overestimated fuel derivative gains for 4QFY21 but was 40% narrower than consensus.
  • We upgrade SIA from Hold to ADD as SIA's share price decline opens up a new opportunity to accumulate for the likely reopening of borders during CY22F.
  • Our target price for SIA is lowered to S$5.64 on a lower FY22F BVPS estimate, still based on a P/BV multiple of 1.06x (+1 standard deviation above mean since 2011).

SIA's 2HFY21 benefitted from MTM gains on fuel derivatives

  • SIA (SGX:C6L) group reported a 2HFY21 (Oct 2020 to Mar 2021) core net loss of S$481m, higher than 2HFY20’s S$323m loss, as the full effect of the COVID-19 pandemic was felt only from Mar 2020.
  • The 2HFY21 loss would have been higher if not for the S$350m in MTM fuel derivative gains (3Q: S$151m, 4Q: S$199m), which compares favourably to 2HFY20’s MTM losses of S$710m.
  • Against the immediately-preceding half-year, 2HFY21’s loss narrowed by S$1.26bn (-72% h-o-h), with three-quarters of the variance explained by the swing from 1HFY21’s S$564m in MTM losses to 2HFY21’s S$350m in MTM gains. These MTM gains and losses arise from the fluctuation in Brent crude oil prices against the over-hedged fuel derivative position and higher oil prices in the past six months have helped to narrow SIA’s losses.
  • SIA group’s reported net loss was a staggering S$4.3bn in FY21 vs S$0.2bn loss in FY20, with S$2bn of the FY21 loss contributed by various exceptional items; the main chunk of S$1.7bn came from aircraft impairments (mostly booked in 1HFY21).

SIA’s access to cash is second to none in the aviation industry

  • Despite the losses, SIA group’s net MCBs will only convert into ordinary shares on its maturity date of 8 Jun 2030.

Operating cash burn appears to have declined

  • SIA group operating cash burn appears to be heading in the right direction.

SIA target price computation and forecast changes

  • Our target price of S$5.64 for SIA is based on the MCBs can only be converted on one specific day, i.e. 8 June 2030, which is the maturity date of both tranches of MCBs; a conversion date that is nine years’ away is beyond the decision-making horizon of many investors, in our view.
  • Furthermore, ample access to cash from shareholders is an advantage for SIA groupin the current environment and something that many of its airline competitors struggle with. Hence, we reflect SIA’s privilege by not assuming the conversion of the MCBs when deriving our target price for the airline.
  • See
  • Potential rerating catalysts include a recovery in international passenger traffic sometime during CY22F following a possible containment of the global COVID-19 pandemic once vaccines are rolled out this year and next year. The SIA group disclosed yesterday that it expects to deploy 28% of its pre-COVID-19 passenger airline capacity by June 2021 and 32% by July 2021. We have assumed an average 30.5% of pre-COVID-19 capacity for FY22F as a whole.
  • Downside risks include a longer-than-expected shutdown in global international travel as various countries keep their travel bans and restrictions on inbound travellers in place in order to prevent imported cases of COVID-19, especially of the new and more infectious variants.
  • See report attached below for complete analysis, statistics summary and charts.

Raymond YAP CFA CGS-CIMB Research | https://www.cgs-cimb.com 2021-05-20
SGX Stock Analyst Report ADD UPGRADE HOLD 5.64 UP 6.000