Highlights
Resume coverage with a Reduce recommendation and TP of S$6.80.
Our TP is based on 1.1x FY24e book value per share. We expect SIA to deliver sustainable ROE of 8%, from which we derived a target price to book of 1.1x at COE of 7.0%.
Background
Singapore Airlines (SIA) provides global air transportation services for passenger and cargo. The full-service passenger service and cargo service are operated under “Singapore Airlines” brand, while “Scoot” is the low-cost carriers that offer no-frills services to short-haul and regional routes. As of 31 March 2023, the group’s passenger network covered 109 destinations in 36 countries and territories. SIA served 74 destinations while Scoot served 58 destinations. The cargo network comprised 118 destinations in 38 countries and territories. Through code-sharing with other airlines it covers more than 220 destinations worldwide.
Fleet
As at 31 March 2023, the group had 195 aircraft (Figure 1) in its operating fleet comprising 188 passenger aircraft and seven freighters. SIA’s operating fleet comprised 133 passenger aircraft and seven freighters, while its low-cost carrier arm, Scoot, had 55 passenger aircraft. It currently has 100 aircraft in its order book.
Capacity & Loads
SIA resumed flights earlier than other Asia Pacific carriers. Group passenger capacity reached 79% of pre-Covid levels in March 2023, higher than the 58% for the international scheduled services of Asia-Pacific airlines. Passenger load factor hit 85.4%, the highest in SIA’s history (Figure 2).
SIA plans to reach 83% of pre-pandemic capacity in 1H24, and we think it could achieve 100% in FY24e. However, passenger load factor could dip with more competition and tapering in demand. Cargo’s capacity will rise with more bellyhold space on passenger flights, but loads are expected to fall further with weaker exports and global manufacturing output (Figure 4).
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Peggy has been a sell-side equity analyst for 22 years and a fund manager for 15 years.
