Maybank KimEng upgraded Singapore Airlines to Buy from Hold on an improving outlook, saying the carrier’s strategy to consolidate Silkair appears “wise.”
“They have done this before with merger of Tigerair into Scoot with great success,” the brokerage said in a note last week, pointing to improved traffic growth, load factor and profitability since.
“The merger [of SIA and Silkair] will demarcate the group’s business segment clearly, whereby SIA focuses on the premium segment and Scoot handles the budget segment. The definition of short-haul and long-haul does not matter anymore,” the note said.
“It will enhance route efficiency and reduce operating cost. Furthermore, this will enable the group to have a better grasp of supply-demand and leverage it for pricing power,” Maybank KimEng said.
The brokerage also raised its fiscal 2019-2021 earnings forecasts for SIA by 33 percent, 37 percent and 17 percent, respectively, to factor in a lower fuel price, better yield outlook, the latest traffic-growth plans and dollar/Singapore dollar estimates.
SIA has hedged up to 46 percent of its fuel-use expectations through 2023 at “reasonable” levels of US$59 to US$64 a barrel for Brent, providing some cost stability and lowering operating risk, the note said, adding that enables the group to price forward tickets more accurately.
The stock’s dividend yields of more than 4 percent were also both attractive and above-average for its peers, it said.
It raised its target price on the stock to S$11.20 from S$9.80.
Shares of Singapore Airlines ended Friday down 0.21 percent at S$9.72.