SINGAPORE (Nov 8): CIMB Research is keeping its “hold” recommendation on Singapore Airlines (SIA) despite the group posting a set of stellar results in 2Q17/18 ended September.
However, it is lifting its earnings forecasts and upgrading its target price to $10.82, from $10.42 previously.
SIA saw its earnings nearly treble to $190 million during the quarter on the back of a $90 million improvement in operating revenue from its parent airline company.
This was partially contributed by higher passenger flown revenue on higher passenger traffic as well as higher other incidental income.
See: SIA's 2Q earnings nearly treble to $190 mil; declares 10 cents interim dividend
However, CIMB analyst Raymond Yap says in a report on Wednesday that SIA’s earnings were lifted by favourable cyclical dynamics for cargo and the SIA mainline.
“We retain ‘hold’, as the momentum behind the cyclical upswing may have peaked, oil prices are on the rise, and structural competition remains strong,” says Yap.
The analyst also points out that SIA was cautious in its outlook.
“Headwinds remain as competitors mount significant capacity in key markets. Yields continue to be under pressure, despite some stabilisation in recent months,” the group says in a statement accompanying its results announcement on Tuesday.
Yap believes this reflects the “underlying structural realities on the ground.”
On the cargo front, demand growth is likely to remain strong, but is expected to slow in the month ahead.
In addition, Yap says that higher oil prices add to the uncertainty ahead for SIA.
As at 3.43pm, shares of SIA are trading 42 cents higher at $10.74, implying an estimated price-to-earnings ratio of 22.3 times and a dividend yield of 2.0% in FY18.
