Why JP Morgan analysts rated SIA shares ‘underweight’
Singapore Airlines’ (SIA) share price fell to a two-month low on Monday, as the stock's forecast remained grey.
SIA share price kickstarts the week at two-month low
Shares of national carrier Singapore Airlines (SIA) fell to a two-month low within the first 90 minutes of trading on Monday 20 July 2020, following last week’s soft earnings preview.
As at 13:10 SGT on Tuesday 21 July 2020, SIA stocks have rebounded slightly, and are trading at S$3.71 a share.
IG’s market analysis show that ‘buys’ form 75% of all trades on the SIA counter on Tuesday. Across the week so far, ‘sells’ dominated trades at 59%.
In terms of client sentiment, 95% of IG client accounts with open positions in this market expect the price to rise, while the remaining 5% of clients envision a price decline.
Analysts say SIA may face S$740 million net loss
On 10 July, JP Morgan analyst Karen Li reiterated an ‘underweight’ rating on the SIA stock, over concerns of the group’s associated Covid-19 capacity dilution impact, as well as potential challenges in ramping its return profile back up in the medium term.
She thus maintained a ‘cautious view on SIA’s near-term operational outlook’, noting that the airline group’s capacity cuts, coupled with its oil hedge position, ‘could lead to meaningful losses near-term, particularly given the current low oil price environment’.
In addition, she gave SIA a share price target of S$4 per share, based on a target price-to-book multiple of 0.55x that she said is in line with trough-level valuations.
Reversely, Li said that downside catalysts include a faster-than-expected recovery in travel demand/consumer confidence post-Covid-19 and a rapid recovery in oil prices in the near term.
IG’s industry-leading CFD trading platform allows you to buy long and sell short Singapore Airlines (SIA) shares without having to trade the actual asset.
Meanwhile, Bloomberg Intelligence aviation analysts James Teo and Chris Muckensturm estimated in a 15 July note that SIA may face a potential S$740 million net loss in Q1 and drag from S$124 million in one-off costs due to the liquidation of its NokScoot joint venture in Thailand.
They added that realised fuel hedging losses for the quarter could rise sharply to S$570 million, with oil prices falling below US$30 per barrel for most of April and May.
SIA expects ‘material operating loss’ in Q1
Last Wednesday 15 July, SIA Group reported that its passenger carriage for the month of June 2020 across all its airlines declined 99.5% year-on-year.
As a result, passenger load factor for the whole month fell 74% from June 2019 to 12.2% across the group.
The airline also stated in the same update that it expects to report a material operating loss for the first quarter of fiscal 2020/2021.
It added that although a green lane was established between Singapore and selected cities in China in June – alongside the lifting of transit restrictions via Singapore, easing of border controls and travel restrictions remain ‘slower than expected’.
With industry forecasts estimating a two to four-year recovery time frame for passenger traffic to return to pre-pandemic levels, the group stated that its ‘recovery trajectory will be slower than initially projected, and will have a material impact on our revenue generation capability in FY20/21’.
Full details will be provided on 29 July 2020, when first quarter results for FY2020/2021 will be announced.
How to trade SIA shares with IG
Are you feeling bullish or bearish on Singapore Airlines 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:
IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.
The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.
No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk. Please see important Research Disclaimer.
Please also note that the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.
Seize a share opportunity today
Go long or short on thousands of international stocks.
- Increase your market exposure with leverage
- Get spreads from just 0.1% on major global shares
- Trade CFDs straight into order books with direct market access
Live prices on most popular markets
- Forex
- Shares
- Indices
See more forex live prices
See more shares live prices
Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.
See more indices live prices
Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 20 mins.
