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Tliet wrote a post · Mar 6 21:34

Citi Downgrades SIA to 'Neutral' Amid Higher Cost Assumptions

CITI Research expects Singapore Airlines’ (SIA) share price to face continued pressure in the final quarter of its financial year due to rising unit costs, excluding fuel, in line with management guidance.

In a report on Wednesday (Mar 6), the research house downgraded its rating on the stock to “neutral” from “buy” and slashed its target price to S$6.63 from S$7.72.

This decision followed SIA's Q3 financials report in February, which fell short of street estimates, particularly due to management's guidance on rising unit costs and disappointing cargo pricing.

Analyst Kaseedit Choonnawat cut SIA’s core earnings and revenue forecasts for FY2024 to FY2026, with new estimates 10 to 39 per cent below consensus.

The lower target price reflects a reduced price-to-book value multiple based on Citi’s FY2025 estimates, reflecting the expectation of a lower core return-on-equity (ROE).

Choonnawat expects SIA’s cost per available seat kilometre for FY2024 to FY2026 to remain relatively flat, excluding fuel, as upward cost pressures are offset by efficiency gains.

Cargo pricing estimates were also lowered to account for back-tracking and the trans-shipment nature of SIA’s cargo.

Despite challenges, Choonnawat remains positive on the group’s passenger prospects, citing upcoming leisure events and SIA’s dominance among Asean carriers.

He anticipates a mild pricing normalization for tickets in FY2025 based on Citi’s ticket price booking exercises, forecasting passenger yield to normalize gradually over the next few years.
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