While Singapore Airlines may see a short-term boost if it sells its 49% Virgin Atlantic stake, investors should remain focused on the carrier’s long-term challenges, CIMB says.
“We see a near-term boost for SIA’s share price if this deal does go through since Virgin has not contributed markedly to SIA’s bottom line. SIA may also return some capital, as it did after divesting SATS. Longer term, however, this sale does not aid SIA in its attempt to fend off low-cost carriers or Middle Eastern carriers.”
It would view any sale positively as it would allow SIA to refocus on its key intra-Asia and Australia-Europe markets. “However, we question the timing of any such deal. The operating environment for airlines remains fragile, and we believe SIA may not receive full value for its Virgin Atlantic stake.”
It says SIA could wait until its earnings cycle turns up to maximise value as it has no immediate need for cash. But it notes, the new CEO has been more aggressive on tie-ups and partnerships; “this sale could be a precursor to further corporate action.” It keeps a Neutral call with $11.00 target. The stock is up 0.1% at $10.72.