DBS upgraded Singapore Airlines to Buy from Hold on expectations average fuel costs would be lower this year and next after crude oil prices collapsed.
“With earnings now poised to turnaround on the back of lower fuel costs, we see current share price as attractive for investors to buy into SIA’s earnings recovery story,” DBS said in a note on Tuesday.
It assumed an average jet fuel cost of US$82 a barrel in 2019 and US$80 in 2020, compared with US$85 in 2018, compared with US$65 currently.
That means that even if yield improvement is “elusive,” SIA’s net earnings are estimated to rise by 25 percent on-year to S$930 million in the fiscal year ending 31 March 2020, with the potential for further upside if oil prices remain low, DBS said.
It estimated every US$1 decrease in the average jet fuel price raises SIA’s fiscal 2020 earnings by 2.3 percent.
DBS raised its fiscal 2020-21 earnings forecasts by 9-12 percent and increased its target price to S$11.00 from S$10.20.
It noted the stock is trading at just under 0.8 times fiscal 2019 and 2020 price-to-book value, compared with its 10-year average of 0.88 times.
The stock price was up 1.38 percent at S$9.52 at 12:00 P.M. SGT.