SIA share price: Is the stock overvalued?

• Singapore Airlines (SGX: C6L) share price drops to S$5.48 on Tuesday (19 October)
• Total passenger traffic increased 4.4% in September
• CIMB analysts downgraded SIA’s stock, citing limited upside
• Keen to take advantage of SIA’s falling share price? Open an account with us to short the stock now.

Is a S$4.66 stock price target justified?

Shares of Singapore Airlines were trading slightly lower at S$5.48 as of 14:15 SGT on Tuesday.

Among 12 analysts covering SIA shares, only one suggested ‘buy’, seven recommended ‘hold’, while four gave ‘sell’ ratings, according to Bloomberg data.

Their average target price was S$4.66, which implied a potential downside of 15.4% based on Monday’s close of S$5.51.

JPMorgan last Wednesday upgraded its rating on SIA to ‘neutral’, alongside a S$5.20 target.

Bloomberg Intelligence (BI) estimated that the group’s revenue may recover by up to 26% of pre-pandemic levels given Singapore’s extended quarantine-free travel scheme for vaccinated arrivals.

The Republic’s vaccinated travel lanes (VTLs) provide a blueprint for border reopenings worldwide, with intra-Asia routes possibly offering greater traffic upside, BI added.

‘Australia, Japan, China and India could join by 1Q 2022 as their Delta variant outbreaks come under control, potentially restoring another 66% of Singapore Airlines' 2019 passenger capacity,’ BI wrote.

Uptick in demand thanks to VTLs

SIA said on Friday it expects group passenger capacity to reach 37% of pre-Covid levels by the third quarter of FY2021/2022.

In September, the group enjoyed an ‘uptick in demand’, especially to Germany, after Singapore launched its first VTL arrangements with Brunei and Germany.

The group’s total passenger traffic rose by 4.4%, compared to August. Passenger load factor improved by 1 percentage point month-on-month, led by Europe which saw demand pick up for Frankfurt and Munich VTL services.

However, for its cargo operations, September’s cargo load factor fell 1.6 percentage points year-on-year, as the group increased its loads by 54.1% and expanded capacity by 56.9%.

Airport stocks may outperform SIA: analysts

CIMB last Friday downgraded SIA from ‘add’ to ‘hold’, with a S$5.76 target price, citing the group’s rich valuations with limited upside of less than 10%.

The analysts noted that investor optimism at the nascent resumption of air travel has lifted the share prices of SIA and other regional airlines to levels they ‘no longer consider attractive’.

Among CIMB’s ‘hold’ calls in the Southeast Asian aviation sector, it prefers airport and engineering plays such as SATS over airlines like SIA, because the latter group are riskier and may face competitive yield pressures. Meanwhile, airport stocks offer ‘straightforward exposure to passenger volume recovery’.

Nonetheless, among regional airlines, the analysts prefer the Singapore carrier for its low exposure to spot oil prices and its ‘much stronger balance sheet’ compared to AirAsia Group Berhad.

They added that SIA’s substantial liquidity could help it navigate the medium term, during which business and premium travel may take longer than leisure and economy-class travel to recover to pre-pandemic levels.

However, the recovery of its transit business model may be slowed by complicated multi-jurisdictional regulations.

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