SIA stock down 1.8%, snaps 12-day winning streak

SINGAPORE: Shares of Singapore Airlines (SIA) fell amid heavy trading on Friday (Jun 16), snapping a 12-day winning streak as investors took profit.

The stock got off to a promising start, rising to an intra-day high of S$8.05 before retreating through the rest of the trading day to as low as S$7.51. It eventually clawed back some lost ground to finish 1.8 per cent lower at S$7.77.

By contrast, the broader Straits Times Index rose 0.53 per cent to 3,260.03 points, led by gains in large-cap firms such as the three local banks and airline ground handler and food caterer SATS.

With the air travel industry on the mend, shares of SIA have been on an upward trajectory since the start of the year, with the advance boosted in recent weeks after the national carrier announced a record annual profit on the back of strong travel demand.

Last month, SIA announced a net profit of S$2.16 billion (US$1.63 billion) for the year ended Mar 31, rebounding from a loss of $962 million a year ago. The company also declared a final dividend of S$0.28 per share – a figure that market analysts have described as “generous” and would “enhance investor sentiment”.

Since then, the stock has soared nearly 30 per cent.

With this “exponential” rise likely triggering concerns that much of the recovery may have been priced in, IG market strategist Yeap Jun Rong told CNA that a “near-term correction” in the airline’s stock may be due.

“Given the exorbitant rise in share price over the past month, any sell-off from profit-taking activities may also be exacerbated,” he added.

Analysts from Morgan Stanley also downgraded SIA from “overweight” to “even-weight” on Friday, noting that positives such as strong fundamentals and favourable fuel prices have been priced in, according to a report from Bloomberg.

Analysts have sounded a mixed outlook ahead for the airline.

While demand for air travel is set to remain strong – as seen from SIA’s latest monthly operating statistics which showed the national carrier and its budget counterpart Scoot serving 2.8 million passengers in May, up 65.8 per cent year on year – competition is rising as other airlines race to resume more flights.

“We note that the regional landscape is expected to become more competitive as regional airlines return more international capacity to the market,” said OCBC Investment Research analyst Ada Lim in a report dated Jun 14.

SIA’s cargo business, which is already seeing signs of a slowdown, will also see further impact amid macroeconomic headwinds and a recalibration of inventory levels to post-pandemic conditions.

More broadly, the airline industry is facing a host of global uncertainties, ranging from geopolitical tensions and inflationary pressures to a recessionary outlook that threatens to dampen discretionary travel expenditure.

That said, SIA is expected to still deliver strong results ahead, although the bar for market expectations has risen.

Said Mr Yeap: “Further increases in profitability for the company remain on the table, with pent-up travel momentum in place and some relief in cost pressures, but it will still have to deliver above investors’ expectations to drive the (its stock) higher.”

OCBC’s Ms Lim wrote that the airline’s share price “looks frothy” following the recent rally.

“We believe much of SIA’s recovery due to its first-mover advantage may have already been priced in given the recent rally in its share price, and remain cautious that SIA’s recovery momentum may begin to slow later this year,” she added.

That said, Ms Lim noted that the national carrier will continue to have a role in investors’ portfolios as a play on the recovery in the global hospitality and aviation industries.

“SIA’s commitment to service quality could differentiate it from competitors and allow it to defend its market share with greater success, translating to further, albeit limited upside,” she said.

Earlier in the day, SIA refuted a media report that said it may raise its stake in Air India to create a bigger full-service national carrier for India.

According to a Reuters report, the statement from the national carrier is in response to a report by Indian newspaper Mint, which said the carrier had expressed its desire to gradually raise its stake in the Indian airline to about 40 per cent.

“The Mint story dated Jun 16, 2023, is incorrect. There (is) no change in SIA’s position from the November 2022 announcement,” SIA said.