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Singapore Airlines’ share price plunges to 21-year low

The SIA group announced that it would cut 96% of its scheduled capacity for up to end-April amid what it has called the ‘greatest challenge…in its existence’.

Share price of Singapore Airlines (SIA) is now down to a 21-year low of S$5.35 per share. The last time shares were trading at this price was in August 1998.

As at market closing on Monday 23 March, stocks of the airline are trading 10.5% below last week’s closing price of S$6.01.

SIA Group to cut 96% of planned passenger capacity

Earlier that day, the group announced that it would cut 96% of its scheduled capacity for up to end-April 2020, given the tightening of border controls around the world over the last one week to combat the coronavirus pandemic.

This will result in the grounding of around 138 SIA and SilkAir aircraft, out of a total fleet of 147, amid what the group has called ‘the greatest challenge…in its existence’.

To-date, SIA Group has announced six rounds of capacity cuts since February 2020 – when the coronavirus first began to spread.

The group’s low-cost unit Scoot will also suspend most of its network, resulting in the grounding of 47 of its fleet of 49 aircraft.

‘The SIA Group diversified its network and set up Scoot to spread its risks and cater to a wide range of passenger and market segments. However, without a domestic segment, the Group’s airlines become more vulnerable when international markets increasingly restrict the free movement of people or ban air travel altogether,’ the company announced in a statement.

It also stated that it remains unclear when the group can resume normal operations, given the uncertainty as to when the stringent border controls will be lifted.

‘The resultant collapse in the demand for air travel has led to a significant decline in SIA’s passenger revenues,’ the note went on to add.

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SIA 'aggressively' pursuing measures to shore up liquidity

The company also said it is actively taking steps to build up its liquidity, and to reduce capital expenditure and operating costs. As it revealed in a separate statement on 17 March, SIA will 'continue to aggressively pursue all measures to address the impact of the Covid-19 outbreak on the company'.

These include: ongoing discussions with aircraft manufacturers to defer upcoming aircraft deliveries; salary cuts for the group’s management and company directors; as well as a voluntary no-pay leave scheme up to certain management positions.

Last week, the group also drew on its lines of credits with various financial institutions to meet its immediate cash flow requirements. The company added that it is engaging in discussions with several institutions for its future funding requirements.

‘The Company continues to explore measures to shore up its liquidity during this unprecedented disruption to global air travel. The Company will release further details when such measures have been firmed up,’ it concluded.

Read also: Singapore Airlines extends share price losses amid Saudi-Russia oil disputes

Analysts cut their SIA share price targets by over 30%

Analysts had last week lowered their share price ratings and targets on the group’s stocks, based on the 17 March announcement.

OCBC researchers lowered their 12-month share target price for SIA to S$6.60 per share on a ‘hold’ rating, down from S$9.90 previously. They estimated that the group’s earnings for the 2020 and 2021 financial years will be reduced by 55% and 39% respectively with Covid-19’s impact expected to last beyond the third quarter of 2021.

Furthermore, the airline is trading at 0.6x price-to-booking ratio, which is 26% lower than the 2008 Global Financial Crisis level.

‘While valuations look attractive, we would continue to see volatility ahead, and growing pressure on load factors and yields. As such we remain cautious on Singapore Airlines and would watch out for signs of stabilisation (i.e. declining trend of new Covid-19 cases before reviewing our rating),’ the OCBC team wrote in a note.

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DBS analysts lowered their 12-month share price targets by over 35% from S$10.40 to S$6.60 per share on a ‘hold’ rating on 19 March.

They stated that apart from an expected 66% decline in passenger revenue as per the 17 March announcement, losses from fuel costs caused by hedging (SIA had hedged 73% of its projected fuel consumption for 2021 at between US$58 per barrel for Brent crude and US$74 per barrel for jet fuel) will also amount to an estimated S$1.2 billion with oil prices now in the US$20 range.

Finally, they projected that the full-year pre-tax earnings for 2021 would be a loss of S$1.263 billion on a 25% full-year revenue decline.

Read also: Top 9 billion-dollar SGX stocks by fundamentals

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