February 22, 2024

SIA – A Great Way To Fly, A Good Share To Buy?

Outlook Summary:

• Latest results announced showed that SIA revenue and net profits both increased by +4.9%.

• Singapore’s Vaccinated Travel Framework (VTF) was fully lifted on 13th Feb, causing the shareprice to surge higher by +4.23%

• SIA’s low-cost carrier group outperformed in Dec 2023, having a load of 91.7%, an increase from 91.6% in 2022.

• SIA has managed to maintain its Dividend Per Share (DPS) from the previous year at $0.38 cents per share.

• Fuel costs can be managed if hedging is done properly.

Analysis Summary:

SIA looks set to continue its outperformance, especially with the latest earnings announcement. The key main factors that are contributing to its continued outperformance would be the complete lift of the Vaccinated Travel Framework (VTF). Investors can expect to see greater passenger loads that contribute to profitability going forward. And investors can see a preview of this with the latest Q3 announcement that passenger capacity is now close to pre-pandemic levels. Further, with more partners onboard the codeshare scheme, this would allow SIA to sell more of their seats to passengers from other regions as well. SIA is also pushing to explore outside its traditional line of business with its expanded Krisflyer echosphere.

However, headwinds remain for SIA, such as unforeseen blackswan events (such as another covid-19 pandemic), macroeconomic uncertainties and inflationary cost pressures of resources and escalating geopolitical tensions. A shortened hedging cycle would also mean that should air travel continue picking up, SIA will possibly have trouble getting fuel prices at a better hedge. With inflation still persistent in the global economy, it is unlikely that oil prices would come back down to 2023 lows anytime soon.

SIA share price pulled back after the release of its earnings and is now back above the ascending trendline support at $6.62. As long as price is holding above $6.62 near-term support, we expect price to shape a bounce towards $7.30 resistance. Technical indicators are bullish for now with the price holding above long term 55-day MA. MACD indicator is holding above 0, showing a strong buildup in bullish momentum as well. Alternatively, a weekly candlestick close back below $6.62 will see price do a deeper pullback towards the $6.35 support.

Investment / Trading Factors:

Since the implementation of the Vaccinated Travel Framework (VTF) back in April 2022, SIA share price has gained +39.67%. This helped the airline to progressively take in more vaccinated travellers and also bolster the recovering tourism industry. With the implementation of the VTF, SIA became one of the first airlines to start operations as the world gradually opened up post pandemic. This ‘first-mover’ advantage helped SIA’s share price to rebound strongly from the pandemic lows.

More recently, as of 13th Feb 2024, the VTF has been completely lifted. Investors can expect to see greater passenger loads that contribute to profitability going forward. To expand its core airlines business, SIA has also partnered with regional airlines to start codeshare partnerships. Codesharing agreements allow airlines to sell a certain number of seats on each other’s flights while giving passengers more travel options. Airlines can also share revenues this way. It was previously reported in bloomberg that SIA is working on codeshare agreements with Garuda Indonesia, Thai Airways International and Vietnam Airlines.

While the core business of SIA still remains its “full service carrier” namesake and the “low-cost carrier” Scoot, SIA has dived into new businesses to generate new revenue streams and further expand the SIA ecosystem as previously shared at the last investor relations presentation. With the latest announcements, revenue and net profits both increased by +4.9%. Revenue crossed the SGD$5 billion mark for the first time in SIA’s history. Further, net profits climbed up to SGD$659 million from SGD$628 million. Data shows that this was mostly due to robust passenger demands as capacity is now close to pre-pandemic levels.

Downside Risks – Potential headwinds that could impact the business and affect growth: 

1. Unforeseen black swan events (such as another large-scale pandemic like Covid-19)

2. Macroeconomic uncertainties

3. Inflationary cost pressures such as rising oil prices.

Company Description:

Singapore Airlines is Singapore’s flagship carrier and one of the region’s largest airlines in revenue and carrying capacity. The company’s hub is Changi Airport, providing regional and cross-continental passenger and cargo services destined to or transit through Singapore. The company operates under dual brands: the premium carrier, SIA, coupled with its wholly owned subsidiary, and the low-cost regional carrier Scoot. It also owns stakes in SATs and SIA Engineering.

NEUTRAL by Moomoo Financial Singapore Research. Share price closed at S$6.59