Notes on Singapore Airlines

Without a doubt, airlines, in general, remain a huge laggard compared to most other sectors since the markets bottomed in 2Q 2020.

While it is fair to say that international travel is unlikely to see a robust recovery for much of 2021, it is also not much of a negative driver of the sector’s share prices.

Source: Bloomberg

What is getting better are the following:

1. Cash burn-rates — As evidenced in the recent results, SIA has managed to reduce its quarterly cash burn rate from SGD$ 400 mn over last year to below SGD$200mn currently.
2. Cargo is and remains a bright spot. With shipping rates remaining where they are, ATEC has mentioned before that we expect a substantial amount of positive spillover to the benefit of air cargo. With SIA having converted several of its passenger fleet to cargo, the airline will be able to participate.
3. With Singapore positioning itself to be the CoVID vaccine hub of South East Asia, SIA will benefit from its pivotal role as one of the key transportation partner.
4. With Western countries showing substantial increases in vaccination rates, long-range flights in earnest could re-start in the near future.

We go long SIA with a target of SGD$7. ATEC believes valuation targets could prove irrelevant for now if we are right that sentiment surrounding the sector can and will reverse in time. We expect an easy overshoot on traditional measures. We set tactical cut-loss at SGD$ 4.90.