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Singapore Airlines; Sell Off Raises Stock’s Attraction Levels
Corporate Digest | 31 August 2015
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By: Louis Kent Lee
Articles (199) Profile

Among the stocks seen being hit on the STI, Singapore’s flagship airline, Singapore Airlines (SIA) has seen a nose dive in its share price to an all-time low; year to date.

At the time of writing, SIA’s stock has breached beneath the $10 level.

Source: Yahoo!Finance

As a result of Crude oil’s descent (WTI Crude tumbled to 6 and a half years low), many aviation stocks got hit as a result of the inability to charge fuel surcharges like they previously did.

The fall in oil prices has triggered a sector re-rating that saw SIA being culled into it.

That said, the savings as a result of such toppling of crude oil prices, is also a plus point to airlines, as fuel costs weigh approximately more than 30 percent of typical airlines’ cost of goods sold.

Impressive Operational Statistics

It is normal for current shareholders or people who have bought SIA at a much higher price to show disdain on their faces in view of current share price movement.

We feel that is however, rudimentary. Often, there is unobserved value waiting to be scooped and we would like to showcase that for SIA.

Operating statistics tracked shows that the passenger traffic for SIA in July was stellar and significantly better than any monthly performance seen year to date.

Despite the overcapacity of cargoes in the market that has impacted loads and yields, the load factor for July still grew by 2.8 percentage point to 84.1 percent; representing the best July load factor since 2007.

Overall traffic for the group grew 3.5 percent year on year.

Working Strategy In Play

Management indicated in the recent 1Q16 brief that the better load performance is driven primarily by lower yields.

This strategy chaired currently is successfully getting higher traffic flow and with SIA’s brand, its products are known to be unarguable by demand should the price be decent; which is what we think is happening right now, a plus point for SIA.

Valuation Close To Lower Band

We opine that the current valuation of SIA is not a good representation of its potential.

Being a mature airline, a good deck in terms of valuation metric, would be to look at SIA’s asset value.

Since 2010, it is observed that SIA has traded in a narrow price to book value (P/B) band of 0.8 times to 1.2 times.

At current P/B of 0.91 times, we feel that SIA is trading near the floor of its P/B valuation band. This current P/B of 0.91 times is also near its long-term mean P/B of 0.97 times.

The current Net Asset Value (NAV) of the company is around $10.93. For a company that can deliver good earnings and strong cash flows, we think SIA should at the very least be in the valuation range close to its NAV instead, and that current valuation of the stock is unjustified.

Louis is a qualified accountant with the ACCA, and is the Research Editor at Shares Investment magazine.

Please click here for more information about this author.

Singapore Airlines  9.040 -0.13 -1.42%   
Business: Co provides air transportation services to destinations spanning a network spread over 6 continents. [FY19 Turnover] SIA (80%), Budget Aviation (10.5%), SilkAir (6.2%), SIAEC (3.1%), others (0.2%).

Insight: May-19, FY19 revenue edged up 3.3% to $16.3b. Pass... Read More

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