UOB KayHian downgraded Singapore Airlines to Hold, despite better-than-expected passenger loads, amid concerns over cargo profitability as the U.S. pursues a trade war.
“A potential reduction in exports to China due to the U.S.’s trade protectionism and gradual economic slowdown could also lead to lower air cargo demand and revenue,” the brokerage said in a note on Tuesday.
The fiscal 2018 operating profit gain in the cargo division could reverse this fiscal year amid concerns over the trade war among the U.S., China and Europe and as Singapore’s non-oil domestic exports (NODX) to China, its largest export market, have fallen.
“For the past year, SIA’s cargo traffic had a positive correlated to NODX and a potential decline could slow down recovery for SIA’s cargo
traffic,” UOB KayHian said.
It lowered its fiscal 2019 net profit forecast by 16 percent to S$799.3 million on the potential decline in cargo traffic after fiscal two-month 2019 cargo traffic fell by 1.9 percent on-year.
It cut its target price to S$11.90 from S$12.60 after lowering its price-to-book valuation to 0.95 times from 1.0 times. It tipped an entry price of S$10.90.
But UOB KayHian noted that SIA’s passenger load factors came in slightly above expectations; for the full year, the brokerage had expeced the passenger load factor to decline 0.2 percent, but year-to-date they are up 1.9 percent on-year, which it said showed strong underlying travel demand.
The stock was down 0.63 percent at S$11.00 at 9:12 A.M. SGT.