Analysts say SIA may face S$740 million net loss in Q1

SIA’s share price is down 2.4% this week, as the group reported that June passenger numbers fell 99.5% year-on-year.

What’s the latest on the Singapore Airlines (SIA) share price?

Singapore Airlines (SIA) shares are down 2.4% this week, as the airline provided a soft guidance ahead of its first quarter results for fiscal 2020/2021.

As at 15:30 SGT on Friday 17 July 2020, SIA stocks are trading at S$3.71 a share.

IG’s market analysis show that ‘sells’ form 57% of all trades on the SIA counter on Friday. Across the week, ‘buys’ dominated trades at 60%.

In terms of client sentiment, 95% of 95% of IG client accounts with open positions in this market expect the price to rise, while the remaining 5% of clients envision a price decline.

Passenger carriage in June fell 99.5% year-on-year

On Wednesday 15 July, SIA Group reported that its passenger carriage for the month of June 2020 across all its airlines declined 99.5% year-on-year.

Consequently, passenger load factor for the whole month came in at 12.2% across the group, 74% lower than June 2019.

Group passenger capacity (measured in available seat kilometres) was down by 95.1% year-on-year.

Breaking down by airline – the flagship carrier’s capacity was 94.0% lower compared to in 2019; SilkAir's passenger carriage decreased by 99.7% year-on-year against a 99.3% cut in capacity; and Scoot’s passenger carriage declined 99.8% year-on-year against a contraction in capacity of 97.5%.

IG's industry-leading CFD trading platform allows you to buy long and sell short Singapore Airlines (SIA) without having to trade the actual asset.

SIA expects to report ‘material operating loss’ for Q1

It added that although a green lane was established between Singapore and selected cities in China in June – alongside the lifting of transit restrictions via Singapore, easing of border controls and travel restrictions remain ‘slower than expected’.

With industry forecasts estimating a two to four-year recovery time frame for passenger traffic to return to pre-pandemic levels, the group stated that its ‘recovery trajectory will be slower than initially projected, and will have a material impact on our revenue generation capability in FY20/21’.

In light of the above factors, the group expects to report a material operating loss for the first quarter of fiscal 2020/2021. Additional details will be provided on 29 July 2020, when a business update for the first quarter of FY20/21 will be announced.

Analysts say SIA may face S$740 million net loss in Q1

On 10 July, JP Morgan analyst Karen Li reiterated an ‘underweight’ rating on the SIA stock, on concerns over the group’s associated Covid-19 capacity dilution impact, as well as potential challenges in ramping its return profile back up in the medium term.

She thus maintained a ‘cautious view on SIA’s near-term operational outlook’, noting that the airline group’s capacity cuts, coupled with its oil hedge position, ‘could lead to meaningful losses near-term, particularly given the current low oil price environment’.

In addition, she gave SIA a share price target of S$4 per share, based on a target price-to-book multiple of 0.55x that she said is in line with trough-level valuations.

Reversely, Li said that downside catalysts include a faster-than-expected recovery in travel demand/consumer confidence post-Covid-19 and a rapid recovery in oil prices in the near term.

Meanwhile, Bloomberg Intelligence aviation analysts James Teo and Chris Muckensturm estimated that SIA may face a potential S$740 million net loss in Q1 and drag from S$124 million in one-off costs due to the liquidation of its NokScoot joint venture in Thailand.

They added that realised fuel hedging losses for the quarter could rise sharply to S$570 million, with oil prices falling below US$30 per barrel for most of April and May.

How to trade SIA stocks with IG

Are you feeling bullish or bearish on Singapore Airlines Ltd stocks? Either way you can buy (long) or sell (short) the asset using derivatives like CFDs offered on IG's industry-leading trading platform in a few easy steps:

  • Create a live or demo IG Trading Account, or log in to your existing account
  • Enter <Singapore Airlines Ltd> in the search bar and select the instrument
  • Choose your position size
  • Click on ‘buy’ or ‘sell’ in the deal ticket
  • Confirm the trade

Read more: What's the latest on SIA shares ahead of end-July Annual General Meeting (AGM)?

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