SINGAPORE - As widely expected, the stock of Singapore Airlines (SIA) and other airline related companies took off sharply on Monday (Oct 11) morning following Prime Minister Lee Hsien Loong's announcement on Saturday that Singapore would start opening up its borders as the Republic moves to the endemic phase of living with Covid-19.
Interest in SIA was already obvious in the pre-opening “matching” phase, and it subsequently shot up by almost 9 per cent during the first half hour of trading to hit a high at $5.59.
The stock gained 39 cents or 7.6 per cent to close at $5.52, with some 35.8 million units changing hands.
Meanwhile, SIA Engineering hit a high at $2.20 before pulling back slightly to $2.17, up 7 cents or 3.3 per cent.
Also up was the stock of airport ground services provider Sats, which used to be a subsidiary of SIA a decade ago. The stock gained 16 cents or 3.8 per cent to $4.33 on Monday.
All these come after Singapore announced that it is expanding its Vaccinated Travels Lanes (VTLs) to 11 countries in total, including those in Europe and North America. This is part of the next phase of Singapore's gradual shift to treating the Covid-19 pandemic as endemic, as the majority of the population here is fully vaccinated.
The question is whether these travel-related stocks can sustain their spring.
Analysts note that a VTL is still capped at 3,000 travellers per day into Singapore, indicating a modest and cautious approach, at least for now.
Nevertheless, there has been a rush to book airline tickets - queues were seen at SIA's booking counters and its booking website temporary crashed over the weekend.
But most analysts are not rushing to upgrade SIA's stock just yet.
Mr K. Ajith of UOB Kay Hian is sticking to his target price of $4.85 for the stock for now.
He pointed out that the share price was reacting to the immediate news, but said analysts would be more focused on the outlook over the next two years.
Still, he is looking at a 160 per cent pick-up in traffic in the second half of SIA's financial year ending March 2022. He sees the carrier regaining 68 per cent of its pre- pandemic traffic by next year, and an 80 per cent pick-up in yields by the end of the current financial year.
"The enhanced VTLs should lead to higher demand and potentially could swing SIA to an operating profit by the January-March 2022 final quarter if load factors are above 60 per cent," he told ST.
Analysts also noted that the stock is trading at some 1.4 times its book value, taking into account the dilution from the $6.2 billion mandatory convertible bond issue.
Bloomberg Intelligence projected that SIA may recover by up to 26 per cent of its pre-pandemic level as Singapore extends its quarantine-free travel scheme for vaccinated arrivals to 11 countries compared with just two last month.
This is based on the 11 countries' share of the carrier's 2019 capacity in available seat-kilometres.
"While near-term business travel volume could remain weak, leisure travellers may more than compensate, although this could lower average fares," the report said.
The market consensus for SIA is $4.52, with CGS-CIMB the most bullish at $5.54 and JP Morgan the most cautious with a target of $3.70.
Credit Suisse has a target of $4.40, citing SIA’s “rich valuations” at the moment. It prefers Sats, given the ground services company’s healthier balance sheet and net cash position.
DBS Group Research has a 12-month target of $4.90 on SIA, but noted that travellers were willing to pay premiums to fly on the VTL flights.
“However, the immense volume of users on SIA and travel meta-search websites following the announcement, and distinct uptrend in air fares we witnessed clearly demonstrates that fundamental demand is robust and travellers are willing and ready to splurge for their next trip,” DBS said.