CGS-CIMB Research analyst Raymond Yap has reiterated his “add” call on Singapore Airlines (SIA) in a report on Feb 5, with a lower target price of $4.89 from $4.91 previously.

Yap’s recommendation comes on the back of the airline’s net loss of $142 million for the 3QFY2021 ended December.

The airline’s core net loss of $160 million during the quarter is narrower than the $1 billion and $726 million net losses reported by the airline in 1QFY2021 and 2QFY2021 respectively, which should “please the market”, writes Yap.

The narrowing of core net losses of some $566 million was mainly driven by fuel derivative mark-to-market gains of $187 million in the 3QFY2021 compared to mark-to-market losses of $102 million in the 2QFY2021.

The gains were attributable to an increase in spot Brent crude prices from US$41 ($54.69) per barrel as at end-September to US$51 per barrel as at end-December, he adds.


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On this, the airline’s 9MFY2021 core net loss of $1.9 billion came “broadly in-line” with the brokerage’s full-year loss forecast of $2 billion.

To this end, Yap foresees another quarter of narrow losses in the 4QFY2021 due to the rise in Brent crude oil prices. As at Feb 5, the price of oil has rallied to US$58 per barrel due to the global destocking of oil inventories.

However, the road to recovery remains “long and uneven” despite the aircraft impairments and rollout of Covid-19 vaccines around the world.

The way Yap sees it, “for a pure international airline that is heavily reliant on transit traffic and on business travel, SIA’s recovery may lag other airlines that have domestic networks, a larger proportion of leisure and/or origin-and-destination traffic”.

As such, he has estimated a higher core loss per share of 3% for the FY2021, but lower core loss per share of 1-2% for FY2022 and FY2023 on various offsetting housekeeping adjustments.

“For SIA as a whole, we are forecasting that it achieves only 33% of its pre-pandemic available seat kilometre (ASK) capacity in FY2022, up from 11% in FY2021, and surpassing its pre-pandemic level only in four years’ time,” he adds.

“With $13.3 billion in equity and debt capital already raised, upcoming aircraft sale and leasebacks, and the option to issue $6.2 billion of convertible bonds, SIA is in a very strong financial position.”

In a separate report released on the same day following SIA’s quarterly analyst briefing, Yap says he is positive on the airline due to its efforts to reduce its daily cash burn.

The way it aims to do this, is to deploy more flights that can more than cover variable costs.


SEE: Singapore Airlines trials pre-departure Covid-19 tests to revive travel


Since April 2020, the airline’s quarterly non-fuel operating costs, including depreciation of some $500 million has implied a monthly cash burn of between $233 million and $277 million, or an average of $250 million.

SIA says its target is to reduce that to $200 million per month.

The airline is also mulling the option to raise another $6.2 billion from mandatory convertible bond (MCBs) on top of the $3.5 billion MCBs issued in June 2020, and $10 billion from its aircraft.

“SIA will make its final decision in early-April as the MCBs cannot be issued later than July 31. In addition, SIA said that it has $10 billion of unencumbered aircraft assets, against which it has the option to raise new secured financing and/or sell and leaseback (SLB),” notes Yap.

“After raising $2 billion in new financing collateralised against aircraft assets in 2020, SIA has the headroom to collateralise up to an additional $2 billion of its aircraft assets without breaching its negative pledge on its Medium Term Note (MTN) programme.”

“Our forecasts have incorporated the additional $6.2 billion MCB issue, which is treated as equity on the balance sheet; this is why we forecast SIA’s net gearing to be only 0.9% at end-FY2022,” he adds.

As at 12.44pm, shares in SIA are trading 14 cents higher or 3.4% up at $4.31.