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Analysts keep ‘hold’ on SIA following FY2024 results

Jovi Ho
Jovi Ho • 5 min read
Analysts keep ‘hold’ on SIA following FY2024 results
Performance is decent but moderating, and SIA’s best days are likely behind it for now, say analysts from DBS, OCBC and UOBKH. Photo: Bloomberg
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Analysts have kept their “hold” calls on Singapore Airlines C6L -

(SIA) following the release of its results for FY2024 ended March 31. 

OCBC Investment Research analyst Ada Lim has the highest target price among the three local banks’ research houses, at $7.53. In a May 17 note titled “Nearing the end of the runway for exceptionalism”, Lim thinks passenger yields have likely peaked and are moderating as other airlines progressively return capacity to the market, especially in the region. 

SIA reported on May 16 record full-year earnings of $2.68 billion. Net profit for the year improved by 24% y-o-y, while revenue increased by 7% y-o-y to $19 billion. Operating profit, which excluded one-offs and exceptional items, was up 1.3% y-o-y to $2.7 billion.

The group-wide passenger load factor, an industry metric used to determine how much passenger carrying capacity is used, improved by 2.6 percentage points to hit 88.0%. 

The airline will reward shareholders with a final dividend of 38 cents, totalling 48 cents for the year, up from 38 cents for the previous financial year. 

Overall, FY2024 results were a slight beat, says Lim. She remains “confident” that SIA’s brand proposition, service quality and product innovation will allow it to navigate the transition from recovery to growth going forward. “In our view, SIA continues to hold long-term value in investors’ portfolios.”

See also: SIA chalks up another record year, but further gains will be tougher

Leaving the best days behind

DBS Group Research, meanwhile, says SIA is “leaving the best days behind for now”. While management shared that forward bookings in 1QFY2025 continue to be healthy, and cargo yields are likely to receive some support from a diversion to air freight from the Red Sea attacks, they highlighted that both passenger and cargo yields continue to face stress due to increased competition. 

DBS analysts Jason Sum, Tabitha Foo and Paul Yong have maintained “hold” on May 17 with a higher target price of $6.50 from $6.10 previously. They think the current set of results proves that its stellar performance this year is unlikely to be repeated. 

See also: Haw Par trading below historical book value, CGSI highlights in unrated report

“Although we anticipate group passenger capacity to grow by 8%-10% y-o-y and ex-fuel unit costs to decline by 2%-3% y-o-y in FY2025, these will likely be insufficient to mitigate sustained pricing pressures, and lower fuel hedging gains for the group,” they add. 

Additionally, the joint venture Vistara, despite the improvement in its operating performance, continues to be loss-making, says DBS. “We believe that Air India is likely to be in an even worse state, given that it is still in the midst of its transformation journey, suggesting that SIA’s 25.1% stake in the enlarged Air India group will be a drag on its bottom line.”

DBS believes that SIA’s valuations are fair, “considering the group’s core earnings are expected to decline in FY2025-FY2026”. “Compared to regional peers, which have greater room for recovery, exhibit a superior earnings trajectory, and offer more compelling valuations, SIA’s risk-to-reward profile seems fair for now.”

Moderating but decent performance

Finally, UOB Kay Hian Research (UOBKH) analyst Roy Chen has the lowest target price, at $6.35. This is up from $6.31 previously. 

In a May 17 note, Chen says yields may moderate further. “Cargo demand strengthened towards the end of FY2024, backed by healthy e-commerce demand, resilient and growing segments such as perishables and concerts, as well as a shift to air freight by some shippers due to security concerns in the Red Sea region.”

For FY2025-FY2026, however, Chen expects profits to moderate but to remain at decent levels. “We maintain our expectations that SIA’s earnings would moderate in the next two years, as we expect further yield moderations driven by competitors restoring/adding capacities.”

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UOBKH’s updated net profit forecasts of $1.91 billion and $1.22 billion for FY2024 and FY2025 respectively are still “meaningfully” above pre-pandemic levels. This is less than $1 billion net profit for most years in FY2010-FY2019.

Gearing is also likely to climb up going forward, says Chen. “Based on our updated financial projection and SIA’s updated capex plan, we forecast SIA’s net gearing to gradually ramp up going forward, reaching 40.7% by end-FY2027. This gearing ramp-up might come in slower than our current projection if there are delays in aircraft delivery due to aircraft original equipment manufacturer (OEM) supply chain issues.”

Meanwhile, the proposed merger of Air India and Vistara is still pending foreign direct investment and other regulatory approvals in India. Management is hopeful that the deal can be completed within 2025. 

Once completed, the merger will give SIA a 25.1% stake in the enlarged Air India group. SIA is expected to recognise a non-cash accounting gain of $1.11 billion from the effective disposal of Vistara.

SIA announced its intention to redeem all remaining mandatory convertible bonds (MCB). This is within our expectations. With this last batch of redemption, SIA would have fully redeemed the $9.7 billion of MCBs that were issued during the pandemic. 

Chen highlights SIA’s “decent” dividend yield of 7.1% in the next 12 months. “There also remains upside risk if it takes longer than expected for competitors to catch up with SIA in terms of capacity recovery, possibly due to aircraft OEMs’ delays in new aircraft delivery.”

As at 1.43pm, shares in SIA are trading 4 cents higher, or 0.60% up, at $6.77.

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