Case Study on Singapore Airlines (SGX: C6L)

Date: 26 November 2018

Singapore Airlines Limited is the flag carrier airline of Singapore located at Singapore Changi Airport. Singapore Airlines began with the incorporation of Malayan Airways Limited (MAL) in 1947 and is currently rank amongst the top 15 air carriers worldwide in terms of the scale of revenue-passengers-kilometres, 10th in the world for the volume of international passengers carried, Singapore Airlines is one of the largest airline businesses in Asia.

The Singapore Airlines group includes many airline-related subsidiaries such as SIA Engineering Company which handles maintenance, repair, and overhaul (MRO) business across nine countries, with a portfolio of 27 joint ventures, including with Boeing and Rolls-Royce. Singapore Airlines Cargo operates SIA's freighter fleet and manages the cargo-hold capacity in SIA's passenger aircraft. It has two subsidiaries: SilkAir operates regional flights to secondary cities, while Scoot operates as a low-cost carrier.

Singapore Airlines recently reported an 81 percent fall in second-quarter earnings, driven by higher fuel prices and non-cash losses at its part-owned Virgin Australia Holdings Ltd, which result in the stock falling 1.8 percent. The stock has fallen by 11.7 percent since January.

Thing took a turn for the better when the company recently announce shuffling of routes among its airlines over the next two years, ahead of SilkAir's merger into Singapore Airlines. Scoot, SIA's budget arm, will also be transferring some of its services to existing destinations served by SIA and SilkAir. The changes are expected to take place between April 2019 and the second half of 2020.

Singapore Airlines is without a doubt considered one of the best airlines in the world. However, its stock is not faring well recently. Its shares currently linger around its 52-week low price. Let’s take a deeper look at the stock with ShareInvestor features.

Let’s look at how SIA is scoring based on ShareInvestor’s grid:

In terms of price movement, although there is a huge decline in its year on year high but there is a strong support for its incremental year on year low.

Reviewing historical CAGR data, the company is also showing positive performances across the ups and downs of both business and market cycles.

However, considering that CAGR does not reveal growth volatility, we can look at forward estimates to have a sensing of the pace of growth and momentum that can be carried into future years.

DBS Group Research recently downgraded SIA to hold with a target price of $10.20 after second quarter earnings fall below their expectation. They mentioned SIA's share price could re-rate on the back of yield recovery, sustained improvement in revenues, and ongoing cost management initiatives to lower its costs. The company transformation programme has started to bear fruit as non-fuel costs across all segments have fallen and further gains from the programme could help to alleviate cost pressures and further optimise revenues.

While Singapore Airlines has a healthy financial position, its business model is dependent on factors outside of its control. Although Scoot could be a source of growth, the overall airline business is dependent on oil prices and the performance of the global economy. This has resulted in inconsistent earnings over the past five years, illustrating how erratic its business can be. Would you include SIA in your portfolio? Leaving you with ShareInvestor’s consensus estimates.

To gain more insights of stocks using ShareInvestor’s webpro, please visit http://www.shareinvestor.com/sg
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