Will Singapore Airlines return to profitability soon?

• Singapore Airlines Ltd (SGX: C6L) share price declines to S$4.92 per share
• Privatisation is ‘not a matter for SIA to consider’, the flag carrier said
• The group has reduced its monthly cash burn to S$100 million to S$150 million
• Buy and sell SIA stocks with an IG account

Analysts stay bearish on SIA’s stock

Shares of Singapore Airlines (SIA) fell 1.4% day-on-day to trade at S$4.92 as of 13:12 SGT on Wednesday, on a volume of about 3.3 million shares.

The sell-off came even as the flag carrier expressed confidence that its cash reserves and fundraising proceeds would be enough to sustain its finances for the next couple of years.

Gloomy sentiment lingered among analysts. Out of 12 research teams, seven recommended ‘sell’, three said to ‘hold’, while two gave ‘buy’ calls. Their average 12-month target price stood at S$4.42 as of Wednesday, according to Bloomberg data.

Last week, Credit Suisse analyst Louis Chua rated SIA shares ‘underperform’ with a S$3.40 target price, while Morgan Stanley’s Divya Gangahar Kothiyal gave an ‘equal-weight / in-line’ rating alongside a S$4.95 target.

SIA says cash sufficient till early 2023

On Tuesday morning, the carrier replied to questions from the Securities Investors Association (Singapore) in relation to the recent rights issue, and whether the company has thought of delisting its stock.

SIA told the investor advocacy group it expects the S$6.2 billion raised through mandatory convertible bonds (MCBs), along with existing cash reserves, to ‘sufficiently cover’ its financial needs ‘well into’ the fiscal year ending March 2023.

The airline also noted that ‘privatisation is not a matter for SIA to consider as it is a shareholder action’, thus the company is ‘not in a position to comment’.

Analysts told The Straits Times that if a privatisation were ever contemplated, such an exercise can only be done with the approval of SIA’s majority shareholder, Temasek Holdings.

Since last April, the group has raised S$15.4 billion, including S$8.8 billion in rights shares and MCBs, and also slashed a fifth of its workforce to cut costs.

What’s next for Singapore Airlines?

SIA intends to raise another S$6.2 billion by issuing the second tranche of MCBs this year before the annual general meeting in July.

The group on Tuesday noted that its monthly operating cash burn has dropped to S$100 million to S$150 million, from around S$350 million at the start of the coronavirus pandemic.

It will continue to reduce cash burn through revenue generated from cargo and a gradual improvement in its passenger business.

SIA said it is ‘well positioned’ to capture more Covid-19 vaccine shipments into the Asia Pacific as vaccine production ramps up and exports grow.

The group aims to provide long-term value for shareholders by ensuring it returns to profitability, such as through its portfolio strategy, fleet modernisation plan, and efforts to pursue new engines of revenue growth.

Singapore Airlines last month described the 12 months ended March 2021 as its ‘toughest year in history’, with the group suffering its worst annual loss.

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