- In Sep26, the aviation sector largely continued its decline. CAO dropped significantly (-7.5%), followed by SATS and SIA at -2.3% and -0.7%, respectively. SIA Engineering increased incrementally by 1.0%. We believe CAO's decline reflects sustained high jet fuel prices feeding through cost of sales. With its lower-cost inventory used, the benefit from cheaper procurement has faded, and future jet fuel procurement will likely be at current elevated costs.
- Passenger growth is still under pressure from elevated jet fuel prices. However, cargo seems to have been growing, driven by AI demand. SIA cargo carried inc. 9.4% YoY in Sep26. Cargo load factor improved most in the East Asia route region (up 5.3 ppts to 55.8%). Singapore’s position as a regional processing and re-export hub for AI supports its growth.
- We maintain a NEUTRAL stance on air transportation amid the lack of near-term stabilisation in the US-Iran conflict. We lower our TPs for SIA to S$7.09 (prev. S$7.35), CAO to S$2.01 (prev. S$2.15) and SIA Engineering to S$3.90 (prev. S$4.06), as we revise down our valuation multiples due to persistent sector volatility amid the US-Iran conflict.
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