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Singapore Airlines share price hits 16-year low: where next?

Things are looking gloomy for Singapore Airlines, which saw share price fall 6.54% in the last one week alone.

Source: Bloomberg

While the 2019-coronavirus’ (COVID-19) burgeoning case count last Thursday (02 March) had triggered massive sell-offs for financial markets everywhere, there was perhaps no Singapore equity that was harder hit than national carrier Singapore Airlines (SIA), which continues to see its share price hit new lows.

Last week, following the United States’ first COVID-19 case ‘without a known origin’, and countries like New Zealand and Belarus reporting their first cases, the group saw its share price fall 6.54% to a 16-year low of S$8 per share.

This was the biggest drop in share value for SIA since July 2019, when stocks had plunged nearly 5% during what was arguably the most contentious period of the US-China trade war.

In mid-January, prior to the outbreak of the coronavirus, SIA shares were trading above S$9 per share.

The International Air Transport Association (IATA) had said last week that the reduced passenger traffic caused by COVID-19 is expected to result in a loss of US$29.3 billion in revenue for the global airline industry.

Globally, there are now more than 89,000 confirmed cases and over 3,000 reported deaths.

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SIA reduces frequencies on all Mainland China routes

The airline, which has been named the 'World's Best Airline' by Skytrax four times, had admitted in its most recent earnings release that the COVID-19 outbreak is presenting ‘significant challenges’ to the business.

It revealed that demand for services to Mainland China has been severely affected. The flagship airline and SilkAir have drastically reduced frequencies on all Mainland China routes for February and March 2020, while Scoot has suspended all flights to Mainland China until 28 March 2020 (end of the Northern Winter 2019/20 operating season).

SIA also added that volatility in fuel prices would likely persist, in view of recent geopolitical tensions and demand-side uncertainties in the global oil market. However, it noted that it had hedged 79% of its fuel requirements in MOPS at a weighted average price of US$76 for the fourth quarter, which it said should help to stabilise fuel costs.

Where do analysts see SIA share price going next?

Even prior to this latest guidance from SIA Group, analysts were already predicting a fall in travel demand and net profits for the airline company.

Raymond Yap, senior analyst at CGS-CIMB, said on 05 February that he expects SIA to ‘report net losses for the next half year from the Wuhan viral epidemic as demand for flights to China and non-China destinations are hurt’.

He gave SIA stocks a ‘hold’ rating and a price target of S$8.46, down from S$10 per share previously.

OCBC researcher Chu Peng had also lowered his target price for the stock from S$10.46 to S$9.90 per share, on the basis that COVID-19 will weaken travel demand, which ‘will in turn weight on SIA’s operating performance’ for the fourth quarter of 2020.

UOB Kay Hian analysts also downgraded the stock to ‘underweight’ with a share price target of S$9.10, on the prediction that the airline’s passenger traffic numbers will decline by 10% from February to end-March, while FY20 net profit will fall by 29%.

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