Analysts positive on SIA, but warn of increasing competition, rising fuel prices and cargo slowdown
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The airline posted a net profit of $628 million for its October-December 2022 third quarter for the 2022/23 financial year.
ST PHOTO: LIM YAOHUI
SINGAPORE - Analysts were mostly positive over Singapore Airlines’ (SIA) strong nine-month earnings announced on Tuesday, and see the airline group posting strong full-year results.
However, they warned that passenger yield could come under pressure going into the current year as more capacity is added and competition intensifies.
The analysts noted that earnings could be impacted as inflation and fuel prices rise, while the cargo business, which had been a star during the Covid-19 pandemic years, normalises in 2023.
Some also highlighted risks associated with SIA’s investment in Air India.
Nevertheless, CGS-CIMB raised SIA’s target price to $6.14 from $5.97, and forecast higher full-year earnings of $2.14 billion, up from $1.89 billion.
Meanwhile, Morgan Stanley kept its “buy” call on the stock at a target price of $6.15, and retained its forecast of the company’s earnings for the year ending March 30, 2023, at $1.31 billion.
The analysts’ reports were floated a day after SIA reported record profit for the nine months to Dec 31, 2022,
The airline posted a net profit of $628 million for its October-December 2022 third quarter for the 2022/2023 financial year, which ends in March 2023.
Earnings for the nine months between April and December 2022 came in at a record $1.56 billion.
The figures were 12.7 per cent up from the previous year’s third-quarter profit of $557 million, and a reversal from the $752 million loss during the April-December 2021 period.
Still, Citi maintained a “sell” call on the stock, citing risks from SIA’s involvement in Air India.
“We highlight again our view that SIA’s Air India associate is likely a short-to-mid-term drag on financials, but this will improve in the long term, especially if shareholders’ funding is less of an issue,” wrote analysts Kaseedit Choonawat and Lu Xi.
Following the merger of its 49 per cent-held Indian carrier Vistara with Air India (its partner Tata Group holds 51 per cent), SIA is investing $360 million for a 25.1 per cent stake in the enlarged Indian carrier, which has options to buy 370 planes on top of the 470 on firm order with Airbus as announced a week ago.
Despite the “sell” call, Citi retained its full-year earnings forecast for SIA at $1.11 billion.
CLSA noted that the results were above expectations due to higher traffic and lower fuel costs over the April-December 2022 period, but retained its “sell” call at a target price of $5.50. It had a net profit forecast of $1.39 billion for the full year.
Meanwhile, Credit Suisse had an “underperform” on SIA, citing a decline in cargo performance during the January-March 2023 fiscal fourth quarter and a moderation in passenger yield amid rising competition.
The report touched on Air India’s large aircraft order and the risk of continued capital injections in future, elevated cost ramp-ups and earnings pressure in the near-medium term as Air India pursues transformation.
Credit Suisse retained its “sell” recommendation and target price of $4.70, but raised its net profit forecast for the financial year ending March 30, 2023, to $1.93 billion from $1.57 billion.
UBS maintained its “hold” call on SIA, citing solid passenger revenue, but noted that this was somewhat offset by weaker cargo. While maintaining a neutral rating, it raised its price target to $6 from $5.70, and also raised its earnings forecast for the full year to $1.89 billion, from $1.2 billion.
SIA’s stock closed at $5.77 at the end of Wednesday.
