SINGAPORE (Mar 13): Since the beginning of the Covid-19 outbreak in Singapore, Singapore Airlines (SIA) has suffered a 22% plunge in share prices, tracking the broad-based decline in flight counts and passenger volumes.
With the pandemic spreading rapidly across Europe, Italy and the US, SIA is set for a tough time ahead. SIA’s mainline and SilkAir have cuta total of 15.6% of available seat kilometre capacity, due to the demand in contraction.
According to CGS-CIMB analyst Raymond Yap, the spread may hurt SIA’s long-haul routes, and cause its share price to fall even further.
“We view the global spread of Covid-19 with alarm as the sharp fall in demand for SIA’s regional flights will now spread to its long-haul flights and, in the process, hurt the take-up rate of lucrative business and first class cabins,” says Yap in a Thursday report.
But Yap observes that as of now, the extent of impact remains uncertain. “The impact on SIA group’s earnings is hard to estimate accurately, as it will depend on the duration and magnitude of the pandemic, and how long it will take to be controlled,” says Yap.
The way he sees it, the ‘all-clear’ sign for the group is still months away, which warrants caution on the part of investors even at the current “low” price levels.
“Our forecasts assume that the SIA group will continue to see lower year-on-year capacity, demand, load factor and yields in FY2021F,” says Yap.
The brokerage estimates that the group’s core net profit will surpass the $200-250 million level for both FY2020F and FY2021F, before a sharp spike to above $600 million in FY2022F, barring any further shocks.
“We estimate a $1.9 billion balance sheet hit in 4QFY2020F from mark-to-market (MTM) losses
on SIA’s outstanding fuel hedges, which have been contracted for the next five years,” says Yap.
The brokerage has also cut the group’s earnings per share (EPS) forecasts for FY2020 to FY2022 by 1%, 40% and 7% respectively to factor in a slower yield recovery.
CGS-CIMB is reiterating its "hold" call on SIA, but at a lower target price of $8.00 compared to the previous $8.46.
As at 2.12pm, shares in Singapore Airlines nine cents lower, or 1.23% down, at $7.25.
