Buy your tickets before it’s too late
- SIA slipped into the red in 4QFY22, but that was in line with expectations
- Stronger than anticipated passenger traffic, coupled with healthy passenger and cargo yields should offset cost headwinds
- Lift FY23/24F net profit estimates to reflect higher near-term passenger load factors
- Maintain BUY with unchanged TP of S$6.20
Investment Thesis:
Recovery in passenger volumes should outpace that of peers in the region. SIA’s international passenger traffic has been recovering at a faster clip than its peers since Singapore launched its first Vaccinated Travel Lane (VTL) in Sep 2021. We expect this trend to persist and envisage the group’s passenger traffic hitting 72% and 97% of 2019 levels by end-FY23/24F, respectively, supported by Singapore’s new Vaccinated Travel Framework and the synchronised reopening of borders in the region and other key markets.
Favourable supply-demand dynamics to underpin healthy passenger and cargo yields. Colossal pent-up travel demand and the gradual restoration of passenger capacity will support passenger yields. Meanwhile, cargo yields should remain high in the near-term due to prolonged widespread supply chain disruptions.
SIA’s valuation may be above its historical mean, but still cheaper than competitors in the region. The airline is currently priced at 1.2x FY23F P/BV, at around +1.0SD of its 10-year mean. We believe that its relatively promising recovery trajectory and medium-term outlook justify a multiple that is on par with peers.
Valuation:
Our target price of S$6.20 for SIA is based on 1.3x FY23/24F P/BV, which is +1.5SD of the stock’s 10-year mean P/BV. We treat the mandatory convertible bonds (MCBs) as debt instead of equity, as we see SIA redeeming the MCBs within 10 years and deduct the accrued interest at end-FY23/24F.
Where we differ:
We have above consensus earnings estimates, as we expect SIA’s passenger volumes to normalise at a faster rate and assumed higher passenger and cargo yields.
Key Risks to Our View:
The key risks to our view are 1) repeated COVID-19 episodes impeding the recovery in air travel, and 2) passenger and cargo yields moderate to pre-pandemic levels prior to our expectations