Brokers’ take: CGS-CIMB downgrades SIA to ‘hold’ on share price rerating

CGS-CIMB has downgraded its call on Singapore Airlines to “hold” from “add” as the brokerage no longer views the national carrier’s upside as compelling despite its strong dividends.

In a report on Monday (Jan 16), analyst Raymond Yap noted that SIA’s share price has rerated 16.5 per cent over the past three months on optimism over China’s reopening.

He added that despite SIA’s share price rally over the past week, as well as expectations of the company to deliver a “decent” return of 6.5 per cent, its current level is no longer above CGS-CIMB’s 10 per cent threshold for an “add” recommendation.

The brokerage’s price target on the stock remains unchanged at S$5.97.

Yap suggested that investors lighten their positions on the mainboard-listed airline, especially should the share price run up further in anticipation of strong Q3 FY2023 results, considering the likelihood of high passenger airline demand and moderation in jet fuel prices.

The analyst projected SIA’s earnings to normalise post-pandemic, and added that he deems the target price-to-book value ratio (P/BV) of 0.9 times “appropriate”. This has been SIA’s mean P/BV since 2011.