DBS Group Research analysts Suvro Sarkar and Jason Sum have maintained “hold” on SIA Engineering with a higher target price of $1.80 from $1.60 previously.
“Our revised target price (TP) of $1.80 factors in broader market valuation uplift and is based on a blended valuation framework (P/E, EV/EBITDA, dividend yield and discounted cash flow or DCF). We factor in a 20% merger and acquisition (M&A)/ privatisation premium to derive our TP,” they write in a Feb 1 report.
Excluding the 20% privatisation premium, the analysts say their fundamental target price would be at $1.50.
SEE: SIA Engineering reports 85.7% lower 3Q20/21 net profit of $7.7 mil; cushioned by JSS
“A privatisation scenario is one of the key catalysts for the stock. Faster than expected vaccine rollouts and speedy restoration of international flights will also help the stock to re-rate,” they note.
That said, Sarkar and Sum foresee a long-drawn recovery ahead for the group, as recovery in flight traffic remains “very slow” at Changi Airport.
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“The absence of a domestic aviation market in Singapore will continue to constrain SIA Engineering’s earnings recovery over the next few quarters,” they add.
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SIA Engineering did not declare any interim dividend in 1HFY2020/2021 ended September. A final dividend, say the analysts, may not happen in FY2021, thus removing one of the key share price supports, view the analysts.
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Given the second and third wave of Covid-19 infections and the slow rate of vaccine rollouts, the analysts say they are now more “bearish” on SIA Engineering’s recovery potential in FY2022.
Shares in SIA Engineering closed 6 cents higher or 3.2% up at $1.93 on Feb 2.
See also: SIA Engineering bets on servicing narrow-body planes ahead of recovery
