Is Singapore Airlines (SIA) worth S$3.75 a share?

• What’s the Singapore Airlines stock update?
• Why did the SIA share price rise 6% this week?
• How did SIA burn though S$4.4 billion in two months?
• When will SIA’s share price recover?

What’s the stock update on SIA?

The Singapore Airlines (SIA) (SGX: C6L) stock rose 5.6% on Tuesday 25 August 2020, following positive Covid-19 treatment developments and improved US-China trade updates.

Share price hit a two-month high of S$3.93, before easing in the afternoon to finish the day at S$3.80.

As at 14:30 SGT on Wednesday 26 August 2020, SIA shares are trading at S$3.75 per share on the IG platform – 1.6% above the week’s opening mark.

IG’s market data shows that ‘buys’ form 75% of all trades on the SIA counter today and 51% of trades across the week so far.

Additionally, 94% of all opened accounts on the stock currently hold ‘buy’ (long) positions, indicating a near-term expectation for SIA’s share price to increase.

Why did the SIA share price rise 6% on Tuesday?

Singapore Airlines’ share price spike on Tuesday had coincided with the broader uptick in market sentiment across Asia.

On Sunday 23 August 2020, US President Donald Trump enacted an emergency authorisation of blood plasma from a recovered Covid-19 patient for expanded treatment use across the country.

According to IG analyst Pan Jingyi, the rosy sentiment was also supported by the latest ‘neutral comments’ regarding US-China trade discussions.

Leaving details scarce, the US trade representative statement notably outlined that both US and China ‘see progress and are committed to taking the steps necessary to ensure the success of the agreement’.

Following these reports, the region’s main indices – from Hang Seng Index to Nikkei 225 – had all opened the day higher.

Singapore blue-chip equity benchmark Straits Times Index also rallied over 1% on the day to peak at an intraday high of 2,570.6.

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How did SIA burn through S$4.4 billion in two months?

This latest uptrend is a stark contrast from last Thursday 20 August 2020, when share price had fallen 2.7% after Bloomberg reported that the flagship carried had already burned through half of the S$8.8 billion it had raised through a share sale conducted in June.

Of this amount, SIA stated in an SGX filing that S$1.1 billion had been channelled into operating expenses, maturing fuel-hedging trades and ticket refunds from cancelled flights due to the pandemic.

An additional S$2 billion went into repaying a bridge-loan facility that the airline had taken in March, while S$900 million was used to service debt and another S$200 million to purchase aircraft.

When will SIA’s share price recover?

In terms of stock ratings, eight out of 12 analysts polled by Bloomberg have given the SIA stock a ‘hold’ call and 12-month share price target of S$3.41.

This represents a downside of 9% from the most recent traded price of S$3.75 a share.

JP Morgan analyst Karen Li reiterated an ‘underweight’ rating on the stock alongside a price target of S$3.10 in an update posted on 31 July 2020.

Citing the group’s soft recovery guidance, as well as a larger-than-expected quarterly loss in Q1 FY2021, JP Morgan has cut its forecasts for FY21~23E, expecting a larger loss this fiscal year and still a loss for FY22, as compared to a prior expectation for a small profit.

Meanwhile, UOB’s K Ajith lowered his price target to S$3.64 from S$3.80. However, he raised his recommendation to a ‘hold’.

Ajith wrote that while he expects the airline’s net loss to increase to S$3.3 billion (up from his initial projection of S$1.6 billion), he is certain that ‘most of the known negatives’ are already ‘reflected in the stock price’.

His investment case has also assumed air traffic rebounding ‘sharply’ in the second half of FY2022 on the expectation of a vaccine roll-out.

Finally, Bloomberg Intelligence analysts predict that the group’s revenue could plunge 82% in Q2 versus 79% in Q1, as they ‘expect high cargo yields to partially retreat’ from Q1 levels.

How to trade Singapore Airlines with IG

Are you feeling bullish or bearish on the SIA stocks? Either way you can buy (long) or sell (short) the asset using derivatives like CFDs offered on IG's industry-leading trading platform in a few easy steps:

1. Create a live or demo IG Trading Account, or log in to your existing account
2. Enter <Singapore Airlines Ltd> in the search bar and select the instrument
3. Choose your position size
4. Click on ‘buy’ or ‘sell’ in the deal ticket
5. Confirm the trade