Photo: Bloomberg

Analysts are mixed on Singapore Airlines (SIA)’s results, as the airline posted a net loss of $4.27 billion for the FY2020/2021 ended March.

See: Singapore Airlines to raise $6.2 bil via MCBs following $4.27 bil net loss for FY20/21 and SIA share price shrugs off largest ever full-year net loss of $4.27 bil

While the airline’s core net loss stood 19% wider than CGS-CIMB Research analyst Raymond Yap’s forecast, Yap has upgraded the counter to “add” from “hold” with a lower target price of $5.64 from $6 previously.

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“We upgrade from ‘hold’ to ‘add’ as SIA’s share price decline opens up a new opportunity to accumulate for the likely reopening of borders during 2022,” writes Yap in a May 20 report.

The lower target price is based on a lower FY2022 book value per share (BVPS) estimate, still based on a price-to-book value (P/BV) multiple of 1.06 times (+1 standard deviation or s.d. above mean since 2011).

The lower forecast, adds Yap, was due to his overestimation on fuel derivative gains for the 4QFY2021.

That said, SIA’s full-year loss stood 40% narrower than consensus’ estimates, or below full-year street estimate of a $3.55 billion loss.

“The 2HFY2021 loss would have been higher if not for the $350 million in mark-to-market (MTM) fuel derivative gains (3Q: $151 million, 4Q: $199 million), which compares favourably to 2HFY2020’s MTM losses of $710 million,” writes Yap.

To Yap, he remains positive on the counter due to the airline’s access to cash, which is “second to none in the aviation industry”.

Despite the losses, SIA’s net gearing fell to 41% as at end-March, compared to 98% as at end-March 2020 due to the $8.8 billion of new equity raised in the FY2020/2021.

SIA’s operating cash burn has also appeared to have declined from $450 million a month during the 1HFY2021 to $100 million a month during the 2HFY2021.

“SIA had said at the Feb 2021 analyst briefing that its cash burn was $250 million/month in Dec 2020. Unless there are some one-off factors, SIA appears to be heading in the right direction,” says Yap.

On this, Yap has widened his core loss per share forecast for the FY2022 by 18% as international may take a while to be restored to “meaningful levels”.

He has also estimated SIA’s core loss per share for the FY2023 to narrow to almost breakeven levels as international travel may pick up quickly during that time once a “significant part” of the global population has been vaccinated.

For the FY2024, Yap has introduced his earnings per share (EPS) estimate of 13 cents.

OCBC Investment Research (OIR) analyst Chu Peng has maintained “hold” on SIA as the airline’s net loss for the FY2021 stood “wider than expected”.

Chu has also given SIA a lower fair value estimate of $4.75 from $4.80 based on a P/B multiple of 0.90 times.

“SIA is trading at forward P/B of 1.1 times, around 2 s.d. above its historical mean. Valuation looks demanding. We assume the MCBs as half debt and half equity as we assume SIA may redeem half of the MCBs before its maturity,” she writes in a May 21 report.

“Post the issuance of Rights 2021 MCB, we expect FY2022’s net gearing to improve from 0.4 times to 0.2 times,” she adds.

UOB Kay Hian analyst K Ajith, on the other hand, has kept his “sell” call on SIA with a lower target price of $4.15 from $4.40.

To Ajith, the airline’s earnings stood within expectations, but the issuance of the $6.2 billion in mandatory convertible bonds (MCBs) offers shareholders “little to cheer, aside from buying the carrier time to ride out the crisis”.

“SIA highlighted that MCB would not be immediately dilutive and it would adjust for accrued interest if it redeems the MCB fully or partially,” he writes in a May 21 report.

“Still, the MCB will eventually be dilutive given that it has a 6% semi-annual yield to call,” he adds.

“In valuing SIA, we have treated the MCB as equity but factored in annual dilution from the accrued interest. If MCB, excluding accrued interest is excluded from shareholders’ equity, BVPS for FY2022 would amount to $3.92 while if included it would amount to $3.20,” he says.

As at end-FY2021, SIA’s BVPS stood at $5.36. However, excluding the $3.5 billion in MCBs, BVPS would amount to $4.18, says Ajith.

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While SIA’s monthly operating cash burn has declined, Ajith estimates that the reduction in government grants could eventually lead to higher cash burn if borders do not open up.

That said, Ajith has made “minimal changes” to his FY2022 earnings estimates, but have raised his earnings estimates for the FY2023 by 16% after factoring in a higher load factor and lower operating expenses.

“We had previously valued SIA at 1.1 times average FY2022/2023’s book value, but we now value SIA at 1.0 times FY2022/2023’s book value after factoring in higher dilution from the $6.2billion in MCB,” says Ajith, who has identified no catalysts for the airline’s share price at the moment.

As at 1.30pm, shares in SIA are trading 5 cents lower or 1.0% down at $4.71 on May 21 or 0.7 times P/B according to UOB Kay Hian's estimates.