Singapore Airlines (SIA) - CGS-CIMB Research 2021-10-15: Time To Look At Downside Risks


Singapore Airlines (SIA) - Time To Look At Downside Risks

  • Downgrade SIA (SGX:C6L) from Add to HOLD, with a higher target price of S$5.76, still based on P/BV of 1.06x, 1 standard deviation above mean, against our adjusted BVPS.
  • SIA's share price has re-rated 59% over the past year, and we think a lot of the future good news is already in the price.

SIA's share price jumped on news of additional VTLs …

  • SIA's share price leapt 9% in the two market days following Singapore’s announcement on 9 Oct that the Vaccinated Travel Lane (VTL) scheme would be expanded from two to 11 countries in the coming month, i.e. Germany, Brunei, US, Canada, Denmark, France, Italy, Netherlands, Spain, UK, and South Korea.
  • Fully-vaccinated travellers, and their unvaccinated children below age 12, can travel between Singapore and these countries without quarantine in the foreign country or upon return to Singapore, subject to one pre-departure COVID-19 test and another on arrival. Departures from Singapore can be on any available flight, but return flights have to be on specially-designated VTL flights so that travellers can avoid the 7-day quarantine in Singapore.

… and more travel restrictions should be lifted soon

  • For now, the positive impact of the VTLs to the SIA group is limited, because Singapore caps the VTL arrivals to just 3,000 daily, which is to be shared between the SIA group and other carriers, like Lufthansa, that are also operating VTL flights. In our estimate, the potential VTL traffic is less than 2% of SIA group’s pre-COVID-19 passenger traffic.
  • We also highlight that while the US and much of Europe is open to Singapore arrivals, many of SIA’s key regional travel markets, like Australia, China, Hong Kong, Taiwan, Japan, Philippines, Indonesia, etc., are still closed to inbound Singapore visitors. Singapore also continues to bar short-term non-VTL arrivals from most countries, except from Greater China.
  • Still, we view the VTLs as a positive development in the right direction, and we expect Singapore to open up VTLs to more countries in the near future, or perhaps scrap the VTL scheme entirely in favour of a broad reopening of its borders to fully-vaccinated travellers from all countries. We expect a flurry of good news in the next 3-6 months.

But most of the good news may already be in the price

  • The stock market appears to have priced in the strong pre-pandemic business, to be slower in pace than point-to-point traffic.

Downgrade SIA to HOLD, with a higher target price of S$5.76

  • We downgrade our recommendation on SIA from Add to HOLD, as we competitors struggle with. Hence, we reflect the value of SIA’s privilege by not assuming the conversion of the MCBs when deriving our target price for the airline.
  • See
  • Upside risks include a faster-than-expected recovery in international passenger traffic sometime during portion of SIA’s pre-pandemic business, to be slower in pace than point-to-point traffic, since the former would depend on regulatory permissions across several national jurisdictions (i.e. Country A, Singapore, and Country B, in flights from A to B via Singapore).
  • See the report attached below for complete analysis.

Raymond YAP CFA CGS-CIMB Research | https://www.cgs-cimb.com 2021-10-15
SGX Stock Analyst Report HOLD DOWNGRADE ADD 5.76 UP 5.540