SIA Engineering’s surge last week on speculation parent Singapore Airlines might take the company private was “too fast too furious,” with the optimism already priced in, CGS-CIMB said in a note Friday.
On Thursday and Friday of last week, SIA Engineering shares surged a combined around 15 percent. On Monday, the stock retreated 2.77 percent to S$2.81 by 11:59 A.M. SGT.
In a research note on Friday, DBS analysts said the stock price spike could indicate the possibility parent Singapore Airlines might take the company private. But in response to a query from SGX, SIA Engineering said Friday it wasn’t aware of any information not previously announced which could explain the trading, nor was it aware of any other possible explanation.
CGS-CIMB said it was the brokerage’s “ongoing wish” for SIA to take SIA Engineering private, seeing no reason for it to remain listed, but SIA Engineering’s response to SGX indicated “this wish may not come true soon.”
Singapore Airlines “has enough issues on hand,” CGS-CIMB said in a note Friday, pointing to concerns ranging from yield pressure on long-haul flights, competition from Chinese airlines and higher oil prices.
In addition, Singapore Airlines’ balance sheet is already stretched, with 28 aircraft due for delivery by the end of fiscal 2020, CGS-CIMB said, citing estimates the carrier’s total borrowings could double to around S$12.2 billion from S$6.7 billion this year.
“We believe it is better strategy for SIA to conserve cash for now,” the brokerage said.
The note also estimated that an acquisition at CGS-CIMB’s target price of S$3.11 on SIA Engineering would result in adding only around 3 percent to Singapore Airlines’ earnings.
“We think the risk-reward is not attractive and efforts to privatise can be better channeled elsewhere,” the note said.
CGS-CIMB kept a Buy call on SIA Engineering, noting the stock yields around 4 percent.
While you’re here, we’re hoping you can help us out.
Shenton Wire has been providing you with quick news and market analysis. But we need your support to continue to bring you the news you’ve come to expect and to expand our reach beyond Singapore.
Your monthly contribution will directly fund our journalism.
You can check your existing account here. You can also contact us about other contribution levels or for corporate subscriptions and syndication queries.