Previous Day Closing price: $10.44
Recommendation: BUY (maintained)
Target price: $13.20 (reduced from S$14.40)
Yield: 2008 - 9.6%, 2009F - 6.2%
We forecast passenger loads to decline by 6% in FY10, following no growth for FY09, while we peg cargo’s decline at 7%, following FY09’s 10% decline. For yields, we have reduced our FY10 and FY11 assumption of passenger yields to 10.5cts/pkm, and cargo at 35cts/ltk. Given that the outlook for air travel remains weak, we anticipate that jet fuel prices will correspondingly stay low. Coupled with cost reductions, the net effect is that we are reducing our FY10 forecast by 35% to S$1,082.5m.
The market has been anticipating a slowdown for SIA – however, we still see value, as it is trading below its trough Price to Book of 0.85x, at 0.8x currently. However, in line with our earnings reduction, we have reduced our price target to S$13.20 from S$14.40, or 1x FY09 Price to Book.
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