What's next for SIA shares?

• Singapore Airlines Ltd (SGX: C6L) share price hit an intraday low of S$5.11 on Tuesday (14 June)
• The blue-chip counter has lost over 7% of its value in the last two weeks
• CIMB’s equity research team has slashed its price target to S$5.75 from S$5.92
• Keen to trade SIA shares? Open an account with us to long or short the stock

SIA stock price: what’s the latest?

Singapore Airlines (SIA) shares fell as much as 1.4% on Tuesday, continuing the present bearish trend.

The large cap stock has been in a downward trajectory recently, declining over 7% since 31 May, as aviation recovery wavered on the back of rising oil price concerns.

On a year-to-date basis, SIA shares are up slightly by 2.6%.

In terms of stock outlook, the national carrier has an average price target of S$5.35 (representing a 4.03% upside potential from its last traded price of S$5.14) and rating of ‘neutral’ (based on the latest SGX StockFacts consensus data).

Why did CIMB cut its SIA price target?

The latest call came from CIMB analyst Raymond Yap, who cut his target price for the airline to S$5.75 from S$5.92 on 14 June, while keeping a ‘hold’ rating.

The analyst noted that while SIA is in a ‘very strong revenue position’, thanks to higher ticket prices, market share and demand, the possibility of high oil prices could mitigate the gains.

He posited that spot jet fuel price could increase from US$120 per barrel (bbl) to US$135/bbl in FY2023, and from US$95/bbl to US$110/bbl in FY2024.

Yap is also concerned about rising living costs, with a global recession being a ‘rising possibility’. This may cause consumer spending and discretionary travel demand to fall, he added.

‘As SIA’s competitors ramp up their capacity deployment in the future, SIA’s heightened market share could fall back down to 2019 averages. This may cause the current high airfares to moderate, even if jet fuel price levels remain elevated,’ Yap wrote.

As such, he reduced his firm’s earnings per share (EPS) estimates for FY2023 and FY2024 by 7% to 15%.

However, the analyst lifted EPS estimates for FY2025 by 27%, citing ‘excessively bearish yield forecasts’ related to higher oil prices.

Finally, Yap believes that SIA is likely to redeem around half of its mandatory convertible bonds (MCB) within the next two to three years as he believes the group is holding ‘too much cash’ at present. As of 31 March 2022, SIA has a net debt position of 8.5%, as compared to 32% on 31 December 2020.

‘Redeeming part of the MCBs will reduce SIA’s shareholders’ equity and make SIA’s price-to-book valuations look more expensive, which is another downside risk factor for investors to consider,’ he wrote.

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