Singapore Airlines (SGX:C6L)
A great way to fly
BUY
22.8% Upside
Target Price $7.76
Last Close Price: $6.32
1 month VWAP: $6.39
Executive Summary
We present a buy recommendation with a 12 month target price of $7.76, a 22.8% premium from last close
Robust Demand Profile for SIA
Cost Effectiveness for a Leaner Operations
Continuous Efforts in Diversification
BUY RECOMMENDATION
Business Overview
Industry Overview
ESG
Investment Thesis
Financial Analysis
Valuation
Risks
Business Overview
Understanding the components that allows SIA to fly high
Singapore Airlines Company Overview
Background
•
Subsidiaries & Global Partnerships
History: Established in 1947 as Malayan Airlines Limited, Singapore Airlines initially
operated domestic flights. Political issues in 1972 led to its separation, forming Singapore
Airlines. The iconic "Singapore Girl" was introduced in the 1970s, enhancing its brand
image. Renowned for top-tier service and safety, the airline quickly gained international
recognition, consistently ranking among the world's best.
•
Management: Goh Choon Peng (CEO), Lee Lik Hsin (CCO), Tan Kai Ping (COO), Jo-Ann Tan
(CFO).
•
Strategy: Singapore Airlines utilised multi-hub strategies and global partnerships to
expand and grow like investing in Air Vistara to tap onto the domestic market in India.
•
Corporate Finance Transactions: 25% stake in Air India due to Air India-Vistara merger,
Owns SIA engineering company and Scoot (Codeshare agreement).
With Singapore Airline’s ultimate goal of expanding internationally and provide top-quality
services to its clients, we believe that Singapore Airlines has a strong foundation and future.
Geographical Presence
America
6%
Scoot is a low-cost airline, aiming to increase accessibility to connect to
over 30 destinations outside of Singapore Airlines’ networks.
SIA
Engineering
SIA Engineering is focused on providing aviation engineering services
of the highest quality at competitive prices.
SIA
Cargo
SIA Cargo is serviced by 7 Airbus Cargo Air Freighters. With 7 more
Airbus A350F on order. Partnership with DHL Express
Other subsidiaries include Tiger Airways, Silk Air (combined to become Scoot), Singapore
Flying College and Tradewinds Tours and Travels.
Joint
Partnership
Star Alliance member. Recently resumed seeking partnerships with
other airlines for a leaner operations such as codeshare and JVs
Timeline
West Asia
East Asia
62%
East Asia constitutes about 62%
of Singapore Airline’s Revenue by
geographical segment.
1972
1947
Industry Overview
ESG
Investment Thesis
1999
1989
Singapore Airlines was
formed
Business Overview
Accelerate growth
through shift to
renewable sources and
partnership
Tradewinds, subsidiary of
SIA, became Singapore’s
second airline
Malayan Airlines Limited
was established
South West
10%
Europe
16%
Scoot
Financial Analysis
Beyond 2023
Launch of Krisflyer,
frequent flyer programme
Valuation
Risks
Singapore Airlines SWOT Analysis
S
Strengths
1.
2.
3.
O
T
Weaknesses
Strong Revenue
Growth: Achieved best-in-class
margins
Strong Brand Reputation:
Known for excellent service,
high-quality experience, and
innovation (introducing new
technologies, entertainment,
etc.)
Forward-Looking: Expanded
into India with Air Vistara,
forming global strategic
partnerships and new
geographical markets
Business Overview
W
1.
2.
Opportunities
High Operating Cost: Usage of
modern fleets and provision of
premium services
•
High labour and training
costs
•
Reduces price
competitiveness
High Dependency on Global:
Subjected to international
volatility due to absence of
domestic market
Industry Overview
ESG
1.
2.
3.
Growing Aviation Market: Gain
market share of increasing
middle class population due to
economic growth and pent-up
travel demand
Global Partnerships: Increase
route networks and improve
cost-effectiveness
Sustainable Practices: Appeal
to environmentally conscious
travelers and craft an
environmentally-conscious
brand
Investment Thesis
Transaction
Opportunities
Financial Analysis
Threats
1.
2.
3.
Competitive Industry: Stay
relevant and differentiate
among the pool of
industry competitors
Potential Regulatory
Changes: Need to adapt and
adjust timely
High Volatility: Find
alternative sources to
fluctuating fuel price and
potential decline in travel
demand due to global
economic uncertainty
•
Hedge more against oil
prices
Valuation
Risks
Singapore Airlines Business Model
Business Model Element 1: Shift towards Sustainability
Industry Value Chain
SIA
•
Krisflyer Loyalty Program
There is an increasing number of environmentally-conscious consumers and
organisations. Singapore Airlines has been implementing sustainable practices like using
sustainable aviation fuel, which is expected to reduce 2,500 tonnes of carbon dioxide
emissions yearly and reducing the number of single-use plastics in cabin, which also
weighs less, reducing fuel consumption.
Shift in Sustainability
Global Network
Business Model Element 2: KrisFlyer Loyalty Program
Industry
•
Industry Theme 1: Shift towards Sustainability
Regulatory Challenges
Competition
•
Shift in Sustainability
Overarching Competitive Advantage:
• Singapore Airline’s business model is significant as their service differentiates themselves from
the other competitors, which customers can tap on and customize based on own needs.
•
•
Singapore Airlines introduced this program in 1999 to earn miles, which consumers can
redeem for flights. Currently, SIA has also implemented Kris+, which allows consumers to
pay using their application to earn miles. These programs increase customer loyalty and
shows Singapore Airlines’ passion in serving consumers through innovating of new
initiatives.
Key industry themes and trends include shift towards sustainability and regulatory challenges.
With Singapore Airlines incorporating sustainable practices in their services, they will stay
ahead of the sustainability curve. Regulatory challenges are dependent on economic
circumstances, which Singapore Airlines cannot control..
With Singapore Airlines wide location outreach and partnerships with various companies,
Singapore Airlines is better positioned to tackle these challenges and stay ahead of the
industry’s trends and themes.
Business Overview
Industry Overview
ESG
With the shift towards sustainability, customers and businesses are always sourcing for
sustainable companies. With Singapore Airlines, which serves each consumers’ needs
through own capabilities, Singapore Airlines will have to continue to stay relevant and
innovate with sustainability in mind. Singapore Airlines has already set goals to achieve
net zero carbon emissions by 2050 and are taking actions to move towards their
sustainable goals.
Industry Theme 2: Highly Competitive Industry
•
Investment Thesis
Due to the increased demand of flight services from increasing middle-high income
consumers and richer economy, there has been an increase in competitors in this field.
However, Singapore Airlines is unique in terms of quality all-rounded services and
experiences. In addition, Singapore Airlines is consistently investing in new capabilities
to create value for businesses. Thus, we believe that Singapore Airlines is in a good
position to compete in this highly competitive industry.
Financial Analysis
Valuation
Risks
Stock Price Performance & Key Catalysts
SIA historical share price VS STI Index (normalized)
130
SG border closed
Best qtr results since covid
Vaccinated Travel Lane
120
No Air Travel
110
100
Highest net profit in 76 year history
90
80
70
record half year results
60
Resume DVD payment
50
SIA SP
Business Overview
Industry Overview
ESG
STI Index
Investment Thesis
Financial Analysis
Valuation
Risks
Nov-23
Sep-23
Jul-23
May-23
Mar-23
Jan-23
Nov-22
Sep-22
Jul-22
May-22
Mar-22
Jan-22
Nov-21
Sep-21
Jul-21
May-21
Mar-21
Jan-21
Nov-20
Sep-20
Jul-20
May-20
Mar-20
Jan-20
Nov-19
Sep-19
Jul-19
May-19
Mar-19
Jan-19
Nov-18
Sep-18
Jul-18
May-18
Mar-18
Jan-18
Nov-17
Sep-17
Jul-17
May-17
Mar-17
Jan-17
Nov-16
Sep-16
Jul-16
May-16
Mar-16
Jan-16
Nov-15
40
Industry Overview
Flying through the turbulence and emerge stronger
Airlines is High Growth Industry
Industry Definition and Structure
Recovering Passenger's Number Comparing to 2019
•
Definition: Airline industry is a subsector of the Aviation Industry. Airlines provide air
transport services for travellers and cargo.
•
Structure: Airlines industry can be broken down into domestic airlines and
international airlines. Within International airlines, companies can be categorized
further as budget airlines and non-budget airlines
•
•
World
North America
Example of an Airline: Scoot is a subsidiary of Singapore Airlines, and provide low cost
tickets to nearby countries. Scoot as a budget airline, is able to serve lower priced tickets
due to their smaller jets and shorter distance travelled per trip.
-11%
Middle East
-26%
Latin America & Carribb.
-14%
Europe
Post Covid Recovery: Airlines industry took a great hit during the Covid Pandemic from
2020 to 2022 but we are seeing numbers increase to Pre-Covid figures.
-22%
Asia Pacific
-56%
Africa
Airlines’ Market across the world
300
10.00%
8.36%
-32%
239.6B
-31%
4.00%
100
1.00%
0
-2.00%
Africa
Asia Pacific
Europe
Latin America Middle East
& Carribb.
Market Size (USD $B)
North
America
CAGR
APAC presents the largest air travel market with the highest growth
Business Overview
Industry Overview
ESG
2024
2025
2022
Porter’s 5 Forces Analysis on Airlines’ Industry
7.00%
200
106%
118%
106%
114%
110%
122%
108%
115%
108%
116%
103%
120%
102%
112%
Threat of Substitutes – Low
- There are few close substiutes for
air travel
- Increased connectivity by high
speed trains and railroad
have provide a limited form of
alternatives especially for domestic
flights
Influence of Buyers- High
- Products are homogenous with little
differtiation
- Cost of switching between different
airlines are minimal
Competition with Industry – High
- Airlines provide similar services
with little differentiation
- Ease of access to information has
made it even harder for airlines to
stand out
Investment Thesis
Financial Analysis
Influence of Suppliers- High
- Main supplies required are fuel,
labour, and maintaince of aircraft
- There are few supplier and
they hold a signifcant amount
of influence
Threat of New Entrants - Low
- High Upfront Capital
- Relies heavily on Economies of Scale
- Strong Knowledge and expertise is
required to operate in the airline industry
Valuation
Risks
Industry Trends and Future Outlook
Economic Growth
•
Demand for air travel has always move in line with how well the economy is doing
•
Rising economic growth together with an increasing proportion of middle-class has increased demand for air travel
•
This is especially evident for emerging countries such as China and India, where the number of flights taken per capita will rise by 3x and 5x respectively
Low Cost Carrier
•
Low-cost carrier has made air travel more affordable and accessible to more people
•
By using smaller planes, focusing on shorter distance trips and reducing amenities, low-cost carrier can pass on cost-savings to passengers
•
There is also lower barrier of entry for low-cost carrier airlines allowing for such airlines to be more commonplace in the future
Cargo Demand
•
As e-commerce and economic growth become rise in recent years, we see a similar rise in demand for overseas goods
•
Together with an emphasis on fast delivery, we see a rise in demand for cargo flights.
Enviromental Concerns
Business Overview
•
Increase in governmental regulations and consumers’ interest in the environment
•
56% of interviewees of a McKinsey survey are concerned about environmental impacts of airline industry (Mishal, 2022)
•
7.2% of world annual carbon dioxide emissions will be produced by air travel by 2050 (Environmental and Energy Study Institute (ESSI), n.d.)
Industry Overview
ESG
Investment Thesis
Financial Analysis
Valuation
Risks
Largest Airlines in the World by Revenue
Company
EV/ Sales
EV/ EBITDA
Brand Positioning
Competitive Advantage
• Focus on serving major cities in the United States and
0.9x
0.8x
0.7x
0.5x
8.1x
8.5x
6.7x
4.8x
connecting them to major global hubs
• Company focuses on providing comfort and premium
customer experience in first class flights
• Delta owns a majority market shares in many major American
cities, allowing it to dominate other airlines
• Delta operational strategy of using older aircraft with an average
age of 17 years allow it to operate a lower cost fleet, while not
sacrificing on service experience
• AA targets high end customers who fly often
• “Going for great” invoked the company’s effort to strive for
• Uses cross selling tactics to increase their revenue per seat
• “ Good leads the way” a new brand campaign to spur its fuel
• Route network and ultra long haul flying. United Airlines boast the most
continuous improvement in customer experience
innovation as well as its diversity, customer service and safety record
• “To surprise customers with our solutions time and time again”
• Experience, quality and innovation sets Lufthansa apart
• Hassle free and sustainable range of services
•
•
•
global route network
120 international destinations (a portion is ultra long haul destinations)
With Eurowings, the Lufthansa Group has an innovative and competitive
offering in point to point traffic
Addresses both price sensitive and service oriented customers with low
cost basic fares and additional service options that can be booked flexibly
• Best airline in the world operating in the best airport in the
1.13x
Business Overview
4.23x
•
world
•
Known for premier and luxurious service and well-trained cabin •
crew
•
• Serves all international market with heavy focus on APAC
Industry Overview
Investment Thesis
Financial Analysis
Prestige and reputation that goes beyond APAC.
Go-to airline for premier airline in Asia
Strong management and heavily backed by Singapore government
and Temasek Holdings
ESG
Valuation
Risks
Environmental, Social & Governance
Piloting the green transition towards a sustainable airline industry
Green Stewards of the Airline Industry
Environment
Social
Airline Specific
Employees
Fuel Efficiency
25% - Airbus A350-900 &
Boeing 787-10
40% - Airbus A350F-1000
•
•
•
•
Savings
Reduce Fuel Costs
Improve Environmental impact
Labor
10% increase in employees
7.5% turnover rate
•
•
Non-Airline Specific
•
•
SIA Group Direct GHG Emission in tons (Scope 1)
Social Score
Reduced Emissions
Sustainable energy usage
Reduce operating expenses
24.98% YoY
Employees
11687
16301
10007
14163
2.39
Employees
Male : Female -51.4 : 49.6
SIA Group Indirect GHG Emission in tons (Scope 2)
11798
16488
Training
100% completion of holistic •
upskilling plan
Governance
Green Initiatives
Solar panels for all buildings
Less single use plastics
Reduce waste generated
•
•
•
•
•
8608
8484
12763
Anti-corruption
96.1% completion rate •
Governance Score
Themes: Executive Compensation, Board
Composition, Shareholder Rights, Audit
Governance Disclosure
0.99/1
7797
Governance Score
3958
FY18
FY19
FY20
Business Overview
FY21
FY22
FY23
FY19
Industry Overview
FY20
FY21
FY22
ESG
6.58
Above industry median
FY23
Investment Thesis
Financial Analysis
Valuation
Risks
Soaring Ahead to a Greener Future
We have categorized SIA’s ESG initiatives into 4 key themes:
1
Net Carbon by 2050
2
Fuel Efficiency and Transition Towards SAF
3
Environmental Focused Operational Efficiency
Green Waste Management
4
Business Overview
Industry Overview
ESG
Investment Thesis
Financial Analysis
Valuation
Risks
(1) Robust Demand Profile for SIA
Market is underpricing the robustness and resiliency of SIA’s demand
Fuel Tank is Still Full: Long Leg room for Growth for SIA
SIA’s recovery from Covid is amongst industry’s best
…one key areas for growth is the low cost carrier segment
83%
% Capacity vs Pre-Covid (Jan 2020)
75%
57%
The cost per available seat km for low cost carrier is half that of the full service carrier
72%
50%
25%
$6.16
$3.07
498bps
17%
Overall market for low cost carrier globally, 17.1% CAGR till 2030
0%
Apr-22
Jun-22
Aug-22
Oct-22
Dec-22
Feb-23
AAPA (w/o SIA)
Apr-23
Jun-23
Aug-23
SIA
900
800
700
Despite strong recovery, capacity is still not at pre-covid levels…
ASK (KM)
160000
140000
USD Bn
CAGR
%
1
.
7
1
600
500
400
300
TAM
120000
100000
200
100
0
80000
60000
40000
20000
2022
2029F
2028F
2027F
2026F
2025F
2024F
2023A
2022A
2021A
2020A
2019A
0
Looking ahead, SIA is seeking to ramp up passenger ASK capacity to 92% to 100% of prepandemic levels by the end of calendar year 2023 and 2024
Business Overview
Industry Overview
ESG
2023
2024
2025
2026
2027
2028
2029
2030
With room for recovery and strong market growth for
low cost carrier, SIA’s demand profile will be
sustained in the long term
Investment Thesis
Financial Analysis
Valuation
Risks
Market is underpricing SIA strong future outlook.
Air Travel in China have not fully recovered
…using low cost carrier to target price sensitive region
mn
10
69%
57%
63%
68%
8
6
10%
11%
21%
22%
11%
26%
10%
4
33%
2
-
2013
2015
Other Airports
2019
Top 7-10
Jan
2021
Top 6 Airports
SIA and Scoot are offering new destinations in lower tier cities in India, China and SEA in lieu
TAM
of the pent-up demand of travel from these regions to lag the rest
of the world. The
aggressive entrance of new travel options will allow SIA to capture the demand
Feb
Mar
Apr
May
Jun
2019 (Millions)
Jul
Aug
Sep
2023 (Millions)
Oct
Nov
Dec
China has only recovered a little more than half of 2019 pre covid demand
…drumming demand for SIA through promotions
Regional airlines cannot compete with SIA’s flexibility in managing its fleet to meet demand
even for domestic airlines serving domestic flights especially with Scoot being a cheap
alternative to the pricier option of SIA
As more air traffic shifts toward non-major cities
airports, we anticipate robust growth
Business Overview
Industry Overview
ESG
Continued recovery and promotions during peak
travel period will drive growth for SIA for short term
and long term
Investment Thesis
Financial Analysis
Valuation
Risks
(2) Cost Effectiveness for a Leaner Operations
Ongoing revamp of cost base to boost profitability and competitiveness
Singapore Airlines Cost Competitiveness.
Tailored Water Uplift
Digital Solutions
Weight Reduction
Initiatives
1386
3191
2871
Tonnes
saved
Tonnes
saved
Tonnes
saved
Arriving Sequencing
2885
Tonnes
saved
Continuous Descent
Operations
321
Tonnes saved
Flexi Airspace
1386
Tonnes
saved
Installation of Solar
Panels on SIA buildings
SIA
25%
Of energy
needs
Compared to its peers, SIA continued these cost cutting initiatives through Covid which allows them to
weather the storm and emerge stronger
Business Overview
Industry Overview
ESG
Investment Thesis
Financial Analysis
Valuation
Risks
Singapore Airlines Cost Competitiveness.
Singapore Airlines’ Avg fleet age compared to peers
…culminates into a very cost effective operation
50
16
Industry Avg Age = 15.7 years
39.0
40
12
39.2
34.7
8
30
4
20
2019
0
2020
2021
SIA ATK (cents)
2022
2023
Industry ATK (cent s)
2024E
…..looking ahead
Ultra long haul flights
Passengers Carried
- 40%
st
107
1
New generation aircrafts on order
..airline to use Airbus A350F in 2025
More International Destinations
Higher margin business travel
Fuel efficient
New generation aircrafts are 30-40% more fuel efficient; SIA retired 45 aircrafts in 1 year
Business Overview
Industry Overview
ESG
Investment Thesis
Financial Analysis
Valuation
Risks
(3) Continuous Efforts in Diversification
Diversified secure cash flow avenues and realization of synergies from joint partnerships
Cargo Outlook: Brighter than Estimated
We project cargo yield to continue its projections from pre-covid levels
Partnerships beyond airline industry
Cargo Yield / %
2029F
2028F
2027F
2026F
2x
2025
Slated to be delivered in 2nd quarter of 2025
Business Overview
2025F
2024F
2023A
2022A
2021A
2022 saw SIA foster stronger partnerships beyond the airline industry, partnering with
DHL Express. (DHL Express is an international leading express service provider)
2020A
2019A
100
90
80
70
60
50
40
30
20
10
0
Industry Overview
2x increase in cargo fleet strength
ESG
• 5 freighters will be based at Singapore Changi Airport, location of DHL South Asia Hub
• SIA will operate and maintain the freighters
• Freighters fly the Singapore-South Korea-United States route thrice weekly
Partnerships and increase capacity will help uplift cargo revenue in the mid to long term
Investment Thesis
Financial Analysis
Valuation
Risks
Strong Diversification: Expanding its wings
Strategic targeting to match China’s growth
Amplified reach with codesharing agreement
SIA & Scoot announced new destinations to Jinan and Nanchang recently in 2023
Global partnerships in the form of joint ventures, code sharing or even merger have helped
airlines tide the turbulence of Covid-19
Management has announced to resume seeking more partnerships with airlines in APAC
Increasing destination with Tier II China cities positioning Scoot to
enjoy increase in revenue from rising middle class
Business Overview
Industry Overview
ESG
Codesharing agreement with 32 other airlines, increasing the reach of
SIA by 244 new destinations
Investment Thesis
Financial Analysis
Valuation
Risks
Forging a new flight path through Joint Ventures
SIA announced injecting 360mm into the Air India and Vistara deal, giving them 25.1% stake
Destination Breakdown
Market Share of India Domestic Market
Vistara
10%
Air India
9.8%
AirAsia India
6.7%
Growth Expansion
Vistara covers 39 unique destinations providing SIA with increased revenue portfolio, that will continue to grow especially after
merger with Air India
Competitive Advantage
Merger between 2nd (Vistara), 3rd (Air India) and 4th (AirAsia India) biggest player in the rapidly growing Indian Domestic
market consolidates market share
Diversification
Creating Multi-Hub Strategy reduces risk associated with relying on single hub and lack of domestic market in Singapore
Business Overview
Industry Overview
ESG
Investment Thesis
Financial Analysis
Valuation
Risks
Financial Analysis
SIA is flying at a higher altitude compared to its competitors
Understanding Key Metrics
Revenue Growth
Capital Structure
20000
15000
10000
Pos
t-C
ec
dR
ovi
ry
ove
2,971
4.26x
6.32
81.7%
18,774
45.0%
5000
0
-5000
2019A
2020A
2021A
Revenue
2022A
20,168
2023A
31.2%
Debt to Assets Ratio
Net Income
Full Service Carrier VS Low Cost Carrier Sales Forecasts
SGD/mn
In FY 23…..
Low Costs Carrier rebounded more; SIA rebound stronger than peers
Forecast
18000
16000
14000
12000
10000
8000
6000
4000
2000
0
120%
600%
500%
70%
400%
4.28x
300%
20%
2029F
2028F
2027F
Low Cost
2026F
2025F
Full Service
2024F
2023A
2022A
2021A
2020A
2019A
200%
-30%
100%
0%
-80%
2022A
Full Service Carrier
Business Overview
Industry Overview
ESG
Investment Thesis
2023A
Low Cost Carrier
Financial Analysis
2020A
2021A
Industry Revenue Growth
Valuation
2022A
2023/Latest
SIA Growth
Risks
Margins Above Industry’s Median
Operational Analysis
EBITDA Margin Analysis
6000
30%
5000
25%
Forecast
20%
4000
15%
3000
10%
2000
5%
1000
0%
Industry
-5%
0
2019A
2020A
2021A
2022A
2023A
2024F
2025F
2026F
2027F
2028F
-10%
2029F
Aircraft operating expense, lower than pre-covid levels due to stronger cost management
Capital Expenditure Forecast
6000
Forecast
5000
-15%
SIA FY23 EBITDA Margin for SIA is well above the industry’s mean based on latest figures
on capital IQ and bloomberg
12.1%
4000
3000
Net Margin
2000
4.2%
790bps
(SIA)
1000
FY 19
0
2019A 2020A 2021A 2022A 2023A 2024F 2025F 2026F 2027F 2028F 2029F
Capex is in line with management’s forecasts
Business Overview
Industry Overview
ESG
FY 23
Stronger than anticipated recovery for SIA, operational efficiency, a
significant decrease in non-operating expense and interest payments
Investment Thesis
Financial Analysis
Valuation
Risks
Singapore Airlines Key Financials
Leverage and Liquidity Postion
Dupont Analysis
0.6
0.4
0.2
0
-0.2
-0.4
Asset Turnover
NOPAT Margin
2029F
2028F
2027F
2026F
2025F
2024F
2023A
2022A
2021A
2020A
2019A
-0.6
Credit Position (Interest Coverage Ratio Analysis)
3
2.5
Industry (Pre-Covid)
2
EBITDA to interest expense
SIA
12.82x
Industry Mean
1.7x
Debt/EBITDA
3.21x
10.0x
Cash Ratio
1.22x
0.1x
Current Ratio
1.44x
0.7x
Quick Ratio
1.31x
1.21x
SIA also announced an interim dividend share payment of 0.10 cents/share
1.5
1
0.5
0
-0.5
Business Overview
Industry Overview
ESG
2029F
2028F
2027F
2026F
2025F
2024F
2023A
2022A
2021A
2020A
2019A
-1
SIA’s focus on preserving healthy liquidity position and meet its aircraft capex requirements
Investment Thesis
Financial Analysis
Valuation
Risks
Valuation
A new runway for future growth
Valuation Summary
Our model produced a share price of $7.76, a premium of 22.8% to last close of $6.32
We took the blended approach of using Discounted Cash Flow and comparable companies analysis at a 70-30 weightage
DCF Analysis
•
•
25.00
•
23.24
Median/Base
20.00
•
•
13.38
15.00
12.89
11.75
10.00
11.02
8.72
6.65
5.00
8.10
7.59
9.69
7.97
10.62
7.71
11.30
7.82
6.23
5.40
5.00
4.05
4.78
4.16
4.85
•
1.05
–
FY 2024 EV/Revenue FY 2024 EV/EBITDA
FY 2024
Price/Earnings
Comps Weighted Avg DCF Gordon Growth
Share Price
DCF Multiples
DCF Weighted Avg
Share Price
Final Weighted Avg
Share Price
•
•
Business Overview
Industry Overview
ESG
Investment Thesis
Financial Analysis
Gordon Growth method and Multiples method were
used, and a 70-30 split were given respectively
This provides us a balanced view with a slight
preference for perpetuity growth method as the
airline industry has just encountered a black swan
event and exit multiples might be skewed
Comps Analysis
•
5.61
Air travel demand to only taper down from FY 25F
before restoring back to pre-covid level growths
Increase in productivity of staff which will reduce
staff costs in the forecasted period
Cost cutting initiatives which will reduce other
operating expenses in the long term
Comps group are separated into full service and
low costs segments. They are further reduced to
geographical subsets which represents the revenue
profile of SIA and scoot
A blended approach is then taken to find the
median implied share price
2024 forward EV/Revenue (30%), EV/EBITDA
(70%) and P/E (0%) are utilized
Due to negative earnings and highly levered capital
structure of its peers, 70-30-0 weightage is used
Valuation
Risks
Discounted Cash Flow Valuation
Running on our base case scenario and all 4 ESG themes not yet materializing into our forecasts…
SGD mn
Sensitivity Analysis (DCF Perpetuity Growth Method)
Revenue & EBITDA Forecast
24500
Base Case
WACC
19500
14500
9500
6.1%
7.1%
8.1%
9.1%
10.1%
1.5%
58.7%
25.9%
3.2%
(13.5%)
(26.2%)
Terminal Growth Rate
2.0%
2.5%
3.0%
76.9%
100.0%
130.6%
37.4%
51.3%
68.7%
11.0%
20.1%
31.1%
(7.9%)
(1.6%)
5.9%
(22.1%)
(17.4%)
(12.1%)
3.5%
172.9%
90.8%
44.4%
14.6%
(6.0%)
4500
Sensitivity Analysis (DCF Multiples Method)
-500
2019A
2020A
2021A
2022A
2023A
2024F
2025F
2026F
2027F
Revenue
Revenue Forecast
EBITDA
EBITDA Forecast
2028F
Term
WACC Calculation
Leveraged Beta
Beta
Weight
Cost
Comps
0.44
20%
Linear Reg.
1.04
70%
Research
0.9
10%
0.91
Business Overview
Intrinsic Share Price
Weight
Cost
Debt/Capital
45%
3.87%
Equity Capital
55%
11.61%
WACC
Industry Overview
WACC
• Terminal growth rate of 2.5% was used which is in line with the forecasted Singapore
GDP growth
• For the multiples method, 6.1x EV/EBITDA multiple was used which is the airline
industry EBITDA multiple in calendar year 2019 (pre-covid)
6.1%
7.1%
8.1%
9.1%
10.1%
Gordon Growth
$7.59
70%
Multiples
$7.97
30%
5.1x
21.5%
14.4%
7.8%
1.6%
(4.2%)
Terminal Multiple
5.6x
6.1x
31.9%
42.4%
24.2%
34.0%
17.0%
26.2%
10.3%
18.9%
3.9%
12.1%
6.6x
52.8%
43.8%
35.5%
27.6%
20.3%
7.1x
63.2%
53.6%
44.7%
36.3%
28.5%
21.9% Upside
Weighted Avg Median Share price: $7.71
Last Close Price: $6.32
8.13%
ESG
Investment Thesis
Financial Analysis
Valuation
Risks
Comparable Companies Valuation
Blended Relative Valuation
Weightage
Full Service Carrier
95%
Low Cost Carrier
5%
Full Service Carrier
Weightage
Asia Pacific
80%
Europe
North America
10%
10%
Low Cost Carrier
Weightage
Asia Pacific
80%
Europe
20%
Blended Implied Share Price
24.8% Upside
Weighted Avg Median Share price: $7.88
Last Close Price: $6.32
Business Overview
Industry Overview
ESG
Investment Thesis
Financial Analysis
Valuation
Risks
Pro Forma Valuation & Impacts of ESG Themes
Blending our DCF (70%) and Relative Valuation Analysis (30%)
21.9% Upside
W. Avg. Median Share price:
$7.71
…considering the impacts of ESG themes on the intrinsic enterprise values
We see a 4.2% decrease in intrinsic EV from the multiples method and a 9.3% decrease from
the Gordon growth method
24.8% Upside
W. Avg. Median Share price:
$7.88
Enterprise Value (DCF Multiples)
30%
70%
22.8% Upside
Blended Median Share price: $7.76
Min Price: $4.81
Max Price: $11.20
Last Close Price: $6.32
Financial Line Items
Theme 1
• Capital Expenditures
• Other Operating Expenses
Theme 2
• Fuel Costs
Theme 3
• Fuel Costs
Theme 4
• Other Operating Expenses
Business Overview
Status Quo
After Initiatives
Change
25,082
24,028
(1,053)
Status Quo
After Initiatives
Change
23,946
21,726
(2,219)
Percent Change
(4.2%)
Percent Change
(9.3%)
25,000
25,000
20,000
20,000
15,000
Status Quo
15,000
Aft er Initiat ives
10,000
10,000
5,000
5,000
–
–
Status Quo
Aft er Initiat ives
Should SAF prices remain at 2.5x above jet fuel price, the transition towards SAF will hurt SIA in the long term
…what about impact of ESG themes on financial line items?
ESG Themes
Enterprise Value (DCF Perpetuity Method)
Impacts
in Capex due to solar panels installation
in other operating expenses due to
energy savings
• in fuel costs due to prices of SAF
outweigh any fuel costs savings
Assuming all 4 ESG themes are fully materializes in our model, we see a target median share
price decrease to $7.31, a 15.7% premium to last close
•
•
•
•
$7.76
580bps
$7.31
in fuel costs due to lesser fuel used
in other operating expenses due to less
waste that needs that needs to be treated
Industry Overview
ESG
Investment Thesis
Financial Analysis
Valuation
Risks
Risks
Headwinds for SIA as it cuts through the skies
Risks Mapping & Mitigation
We have identified key risks and their mitigation measures
1
Rising cost of fuel, and the costs
associated with environmental goals
will lead to higher cost on the already
low profit margin in the industry
2
2
Impact
1
Probability
Industry Overview
ESG
Investment Thesis
SIA has successfully navigated the
Covid pandemic. Also, SIA has acquired
other airlines which may be a source of
income even when one area is affected
Firm Risk: Delay in delivery of aircraft orders
Boeing has been grappling with
manufacturing issues which caused
delays of aircraft delivery. SIA recently
cancelled some orders from Boeing.
2023 delivery delayed to 2025
3
SIA has seen fuel cost remain relatively flat
in 2023 due to a successful hedging
program. SIA is also looking into a long
term cost sharing program in the adoption
of SAF
Market Risk: Macroeconomic vulnerability of airline industry
Airline industry is very vulnerable to
crisis such as worldwide pandemic,
recession and geo-political unrest
which may affect travel outlook
3
Business Overview
Market Risk: Rising jet fuel costs will result in lower profitability
Financial Analysis
Flexibility in converting airplanes
around to serve high demand
destination. SIA is able to extend B777300ER lease. More orders with AIrbus
Valuation
Risks
Executive Summary
We believe that SIA is still able to climb to higher altitudes
We continue to reaffirm our position of a BUY recommendation of 12 month target price $7.76, a 22.8% premium to closing price
Robust Demand Profile for SIA
BUY
Cost Effectiveness for a Leaner Operations
22.8% Upside
Target Price $7.76
Last Close Price: $6.32
Continuous Efforts in Diversification
Business Overview
Industry Overview
ESG
Investment Thesis
Financial Analysis
Valuation
Risks
Appendix
Income Statement Projections
Running on base case and not factoring any ESG themes into our analysis
Income Statement
2019A
2020A
2021A
2022A
2023A
2024F
2025F
2026F
2027F
2028F
Term
Inflation
Tax Rate
0.7%
16.9%
–
23.2%
1.3%
13.6%
5.4%
13.0%
5.5%
18.0%
4.9%
17.0%
4.3%
17.0%
3.8%
17.0%
3.2%
17.0%
2.6%
17.0%
2.0%
17.0%
Full Service Carrier
Low Cost Carrier
Others
Revenue
13,055
1,711
1,558
16,323
12,918
1,625
1,433
15,976
3,453
126
237
3,816
7,041
298
275
7,615
15,544
1,845
385
17,775
16,017
1,960
424
18,401
16,163
2,037
456
18,657
16,379
2,126
491
18,996
16,668
2,226
529
19,422
17,032
2,339
571
19,942
17,476
2,467
617
20,560
Staff Costs
Fuel Costs
Aircraft Operations Expenses
Other Operating Expenses
EBITDA
2,817
4,587
4,989
1,474
2,457
2,564
4,637
4,294
2,217
2,265
1,161
1,016
1,098
911
(369)
1,474
2,189
1,833
729
1,390
3,056
5,209
3,223
1,514
4,773
3,213
5,218
3,337
1,886
4,747
3,202
5,291
3,383
1,875
4,906
3,203
5,387
3,445
1,871
5,090
3,217
5,508
3,522
1,874
5,302
3,243
5,655
3,616
1,884
5,543
3,343
5,830
3,728
1,901
5,756
Depreciation & Amortization
EBIT
1,390
1,067
2,192
73
2,142
(2,511)
1,999
(609)
2,081
2,692
1,920
2,827
2,075
2,832
2,270
2,820
2,456
2,845
2,611
2,932
2,766
2,991
NOPAT
887
56
(2,169)
(530)
2,209
2,346
2,350
2,341
2,362
2,434
2,482
Interest
Other Non-Operating Expenses
EBT
74
124
869
179
114
(220)
233
2,214
(4,957)
346
135
(1,090)
7
48
2,637
205
162
2,622
210
164
2,621
215
167
2,605
221
171
2,625
226
176
2,706
232
181
2,759
Current Tax
Deferred Tax
Total Tax
17
130
147
4
(54)
(51)
46
(719)
(674)
66
(208)
(142)
(20)
493
474
455
(10)
446
556
(110)
446
558
(115)
443
566
(120)
446
587
(127)
460
469
469
Adjustments to Exclude Minority Interests
39
43
(13)
14
7
–
–
–
–
–
-
Net Income
683
(212)
(4,271)
(962)
2,157
2,176
2,176
2,162
2,178
2,246
2,290
All figures in SGD mn unless stated
Business Overview
Industry Overview
ESG
Investment Thesis
Financial Analysis
Valuation
Risks
Balance Sheet Statement Projections
Running on base case and not factoring any ESG themes into our analysis
Balance Sheet
All figures in SGD mn unless stated
2019A
2020A
2021A
2022A
2023A
2024F
2025F
2026F
2027F
2028F
Term
Assets
Cash
ST Investments
Accounts Receivable
Inventory
Other ST Assets
Current Assets
Property & Equipment
LT Investments & Receivables
Other Non-Current Assets
Total Assets
2,944
117
1,424
230
785
5,500
22,176
344
2,485
30,505
2,685
424
699
239
796
4,843
26,964
65
1,841
33,713
7,783
272
903
195
519
9,672
25,879
50
1,980
37,581
13,763
406
1,526
187
1,806
17,688
27,861
43
3,080
48,671
16,328
404
1,128
227
1,213
19,299
27,687
39
2,076
49,101
18,452
418
1,260
235
1,256
21,622
28,067
39
2,149
51,877
19,453
424
1,278
238
1,273
22,667
29,392
39
2,178
54,277
19,761
432
1,301
243
1,297
23,033
31,422
39
2,218
56,712
20,495
441
1,330
248
1,326
23,841
33,066
39
2,268
59,214
22,176
453
1,366
255
1,361
25,611
33,855
39
2,329
61,833
24,082
467
1,408
263
1,403
27,623
34,489
39
2,401
64,553
231
3,217
3,930
7,378
6,423
3,020
16,822
3,154
3,068
4,780
11,002
8,631
4,348
23,980
1,399
2,201
2,113
5,713
12,938
2,652
21,303
1,175
2,874
3,820
7,869
14,520
3,482
25,871
3,165
4,146
6,360
13,671
12,174
3,006
28,851
3,276
4,292
6,583
14,152
12,509
3,112
29,773
3,322
4,352
6,675
14,349
12,844
3,155
30,348
3,382
4,431
6,796
14,610
13,178
3,213
31,001
3,458
4,531
6,949
14,938
13,513
3,285
31,736
3,551
4,652
7,135
15,337
13,847
3,373
32,557
3,661
4,796
7,356
15,813
14,182
3,477
33,472
1,856
–
–
11,602
(172)
396
13,683
30,505
1,856
–
–
7,614
(156)
419
9,733
33,713
7,180
–
3,496
5,363
(133)
372
16,278
37,581
7,180
–
9,691
5,647
(107)
389
22,800
48,671
7,180
–
6,195
6,557
(74)
392
20,250
49,101
7,180
7,180
7,180
7,180
7,180
7,180
6,195
8,410
(74)
392
22,103
51,876
6,195
10,236
(74)
392
23,929
54,277
6,195
12,018
(74)
392
25,711
56,712
6,195
13,785
(74)
392
27,478
59,213
6,195
15,583
(74)
392
29,276
61,834
6,195
17,387
(74)
392
31,080
64,552
0
0
0
0
0
0
0
0
0
0
0
Liabilities
Short Term Debt
Accounts Payable
Other Current Liabilities
Current Liabilities
Long Term Debt
Other Non-Current Liabilities
Total Liabilities
Shareholder's Equity
Equity Capital
Retained Earnings
Preferred Shares
Other Reserves / Retained Earnings
Treasury Stock
Minority Interest
Shareholder's Equity
Total Liabilities & Shareholder's Equity
Check
Business Overview
Industry Overview
ESG
Investment Thesis
Financial Analysis
Valuation
Risks
Cash Flow Statement Projections
Running on base case and not factoring any ESG themes into our analysis
Cash Flow Statement
All figures in SGD mn unless stated
2019A
2020A
2021A
2022A
2023A
2024F
2025F
2026F
2027F
2028F
Term
683
1,390
(115)
650
(212)
2,192
(567)
110
(4,271)
2,142
1,027
(287)
(962)
1,999
(57)
1,740
2,157
2,081
(1,631)
3,285
2,176
1,920
(5)
1,621
2,176
2,075
(39)
1,887
2,162
2,270
(52)
1,947
2,178
2,456
(65)
2,016
2,246
2,611
(79)
2,095
2,290
2,766
(94)
2,188
2,838
2,657
(3,443)
2,834
9,154
5,722
6,176
6,431
6,716
7,031
7,337
Investing Cash Flow
Investments in Property & Equipment
Investments in Businesses
Other Investing Activities
(5,562)
(241)
(5,104)
(148)
(2,696)
(207)
(3,049)
(149)
(1,606)
(42)
(2,300)
(360)
(3,400)
–
(4,300)
–
(4,100)
–
(3,400)
–
(3,400)
–
279
155
1,506
882
1,157
2,217
2,248
2,289
2,340
2,403
2,477
Cash from Investing
(5,524)
(5,096)
(1,396)
(2,316)
(490)
(443)
(1,152)
(2,011)
(1,760)
(997)
(923)
3,526
2,527
10,008
5,442
(1,722)
446
380
395
411
427
445
20
(450)
(39)
1
(356)
(31)
–
–
(38)
–
–
(5)
–
(297)
(3,862)
–
(322)
(3,998)
–
(350)
(4,054)
–
(380)
(4,127)
–
(412)
(4,220)
–
(447)
(4,333)
–
(486)
(4,467)
3,056
2,142
9,969
5,437
(5,881)
(3,874)
(4,023)
(4,112)
(4,222)
(4,353)
(4,508)
370
(297)
5,130
5,955
2,783
1,405
1,001
307
734
1,681
1,906
Opening Cash Balance
5
2,568
39
2,944
(33)
2,685
25
7,783
(218)
13,763
–
16,328
–
17,732
–
18,733
–
19,041
–
19,775
–
21,456
Closing Cash Balance
2,944
2,685
7,783
13,763
16,328
17,732
18,733
19,041
19,775
21,456
23,362
Operating Cash Flow
Net Earnings
Plus: Depreciation & Amortization
Less: Changes in Working Capital
Plus: Other Changes
Cash from Operations
Financing Cash Flow
Issuance (repayment) of debt
Issuance (repayment) of equity
Payment of Dividends
Other Financing Activtities
Cash from Financing
Net Increase (decrease) in Cash
FX Adjustments
Business Overview
Industry Overview
ESG
Investment Thesis
Financial Analysis
Valuation
Risks
DCF Key Assumptions Projections-Base Case
2019A
2020A
2021A
2022A
SCENARIO 1 - BASE CASE
Revenue Growth (% Change)
Full Service Carrier
Low Cost Carrier
Others
Staff Costs (% of Revenue)
Fuel Costs (% of Revenue)
Aircraft Operating Expenses
Other Operating Expenses (% of Revenue)
Interest (% of Debt)
Other Non-Operating Expenses (% of Revenue)
Tax Rate (% of Earnings Before Tax)
Other ST Assets
ST Investments
Inventory
Accounts Payable (% of Revenue)
Other Non-Current Assets
Other Current Liabilities
Other Non-Current Liabilties
Other Changes
Capital Expenditures
Investment in Businesses
Other Investing Activities (% of Revenue)
LT Debt
ST Debt
Equity Issued (Repaid)
Payment of Dividends
Other Financing Activities
Business Overview
Industry Overview
ESG
Investment Thesis
2023A
2024F
2025F
2026F
2027F
2028F
Term
3.5%
87.0%
10.7%
2.3%
17.5%
28.4%
3,337
10.2%
1.3%
0.9%
17.0%
1,256
418
235
4,292
2,149
6,583
3,112
1,621
2,300
(360)
12.0%
12,509
3,276
8.5%
(3,998)
1.4%
86.6%
10.9%
2.4%
17.2%
28.4%
3,383
10.0%
1.3%
0.9%
17.0%
1,273
424
238
4,352
2,178
6,675
3,155
1,887
3,400
12.0%
12,844
3,322
8.5%
(4,054)
1.8%
86.2%
11.2%
2.6%
16.9%
28.4%
3,445
9.8%
1.3%
0.9%
17.0%
1,297
432
243
4,431
2,218
6,796
3,213
1,947
4,300
12.0%
13,178
3,382
8.5%
(4,127)
2.2%
85.8%
11.5%
2.7%
16.6%
28.4%
3,522
9.6%
1.3%
0.9%
17.0%
1,326
441
248
4,531
2,268
6,949
3,285
2,016
4,100
12.0%
13,513
3,458
8.5%
(4,220)
2.7%
85.4%
11.7%
2.9%
16.3%
28.4%
3,616
9.4%
1.3%
0.9%
17.0%
1,361
453
255
4,652
2,329
7,135
3,373
2,095
3,400
12.0%
13,847
3,551
8.5%
(4,333)
3.1%
85.0%
12.0%
3.0%
16.3%
28.4%
3,728
9.2%
1.3%
0.9%
17.0%
1,403
467
263
4,796
2,401
7,356
3,477
2,188
3,400
12.0%
14,182
3,661
8.5%
(4,467)
Financial Analysis
Valuation
Risks
DCF Key Assumptions Projections-Bear Case
SCENARIO 2 - BEAR CASE
Revenue Growth (% Change)
Full Service Carrier
Low Cost Carrier
Others
Staff Costs
Fuel Costs
-0.8%
87.0%
10.7%
2.3%
17.5%
28.4%
-2.0%
86.6%
10.9%
2.4%
17.2%
28.4%
-0.8%
86.2%
11.2%
2.6%
16.9%
28.4%
0.4%
85.8%
11.5%
2.7%
16.6%
28.4%
1.6%
85.4%
11.7%
2.9%
16.3%
28.4%
2.8%
85.0%
12.0%
3.0%
16.3%
28.4%
Aircraft Operating Expenses
Other Operating Expenses (% of Revenue)
Interest (% of Debt)
Other Non-Operating Expenses (% of Revenue)
Tax Rate (% of Earnings Before Tax)
Other ST Assets
ST Investments
Inventory
Accounts Payable
Other Non-Current Assets
Other Current Liabilities
3,198
10.2%
1.3%
0.9%
17.0%
1,204
401
225
4,114
2,060
6,311
3,133
10.2%
1.3%
0.9%
17.0%
1,179
393
230
4,031
2,018
6,182
3,107
10.2%
1.3%
0.9%
17.0%
1,170
389
236
3,997
2,001
6,131
3,119
10.2%
1.3%
0.9%
17.0%
1,174
391
244
4,013
2,009
6,154
3,169
10.2%
1.3%
0.9%
17.0%
1,193
397
252
4,076
2,040
6,252
3,258
10.2%
1.3%
0.9%
17.0%
1,226
408
262
4,191
2,098
6,427
Other Non-Current Liabilties
Other Changes
Capital Expenditures
Investment in Businesses
Other Investing Activities
LT Debt
ST Debt
Equity Issued (Repaid)
Payment of Dividends
Other Financing Activities
2,983
1,303
2,300
(360)
12.0%
12,475
3,165
8.5%
(3,832)
2,922
1,558
3,400
12.0%
12,775
3,165
8.5%
(3,754)
2,898
1,613
4,300
12.0%
13,076
3,165
8.5%
(3,723)
2,909
1,686
4,100
12.0%
13,376
3,177
8.5%
(3,737)
2,955
1,778
3,400
12.0%
13,676
3,228
8.5%
(3,797)
3,038
1,895
3,400
12.0%
13,977
3,318
8.5%
(3,903)
Business Overview
Industry Overview
ESG
Investment Thesis
Financial Analysis
Valuation
Risks
DCF Key Assumptions Projections-Bull Case
SCENARIO 3 - BULL CASE
Revenue Growth (% Change)
Full Service Carrier
Low Cost Carrier
Others
Staff Costs
Fuel Costs
6.9%
87.0%
10.7%
2.3%
17.5%
28.4%
3.9%
86.6%
10.9%
2.4%
17.2%
28.4%
3.8%
86.2%
11.2%
2.6%
16.9%
28.4%
3.7%
85.8%
11.5%
2.7%
16.6%
28.4%
3.6%
85.4%
11.7%
2.9%
16.3%
28.4%
3.5%
85.0%
12.0%
3.0%
16.3%
28.4%
Aircraft Operating Expenses
Other Operating Expenses (% of Revenue)
Interest (% of Debt)
Other Non-Operating Expenses (% of Revenue)
Tax Rate (% of Earnings Before Tax)
Other ST Assets
ST Investments
Inventory
Accounts Payable
Other Non-Current Assets
Other Current Liabilities
3,447
10.2%
1.3%
0.9%
17.0%
1,298
474
243
4,434
2,220
6,801
3,580
9.8%
1.3%
0.9%
17.0%
1,348
556
244
4,606
2,305
7,064
3,715
9.3%
1.3%
0.9%
17.0%
1,399
650
247
4,779
2,392
7,330
3,852
8.8%
1.3%
0.9%
17.0%
1,450
757
252
4,955
2,480
7,600
3,990
8.3%
1.3%
0.9%
17.0%
1,502
880
257
5,133
2,569
7,873
4,130
7.8%
1.3%
0.9%
17.0%
1,555
1,023
264
5,313
2,659
8,149
Other Non-Current Liabilties
Other Changes
Capital Expenditures
Investment in Businesses
Other Investing Activities
LT Debt
ST Debt
Equity Issued (Repaid)
Payment of Dividends
Other Financing Activities
3,215
1,831
2,300
(360)
12.0%
12,555
3,385
8.5%
(4,130)
3,339
2,081
3,400
3,465
2,144
4,300
3,593
2,206
4,100
3,722
2,267
3,400
3,852
2,325
3,400
12.0%
12,936
3,516
8.5%
(4,290)
12.0%
13,317
3,648
8.5%
(4,452)
12.0%
13,698
3,782
8.5%
(4,615)
12.0%
14,078
3,918
8.5%
(4,781)
12.0%
14,459
4,055
8.5%
(4,948)
Business Overview
Industry Overview
ESG
Investment Thesis
Financial Analysis
Valuation
Risks
Beta Regression
Standard 10y Beta regression
SIA SP
Return
2012
7.588
2013
7.659
0.009357
2014
7.377
-0.036819
2015
8.42
0.141385
2016
8.046
-0.044418
2017
7.095
-0.118195
2018
7.638
0.076533
2019
6.806
-0.108929
2020
4.044
-0.405818
2021
5.55
0.372404
2022
5.5
-0.009009
2023
5.73
0.041818
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
STI
3010.46
3308.1
3188.62
3447.01
2840.9
3175.11
3427.97
3212.88
2481.23
3165.34
3408.52
3258.9
0.5
0.4
0.3
y = 1.0818x - 0.0369
R² = 0.6598
0.2
0.1
0
-0. 3
Return
0.098869
-0.036117
0.081035
-0.175836
0.117642
0.079638
-0.062746
-0.227724
0.275714
0.076826
-0.043896
-0. 2
-0. 1
-0. 1
0
0.1
0.2
0.3
0.4
-0. 2
-0. 3
-0. 4
-0. 5
Graph input
0.098869
-0.036117
0.081035
-0.175836
0.117642
0.079638
-0.062746
-0.227724
0.275714
0.076826
0.009357
-0.036819
0.141385
-0.044418
-0.118195
0.076533
-0.108929
-0.405818
0.372404
-0.009009
SUMMARY OUTPUT
Regression Statistics
Multiple R
0.789184
R Square
0.622811
Adjusted R Square
0.580901
Standard Error
0 .122779
Observations
11
ANOVA
df
MS
0.224022
0.015075
F
Significance F
14.86074
0.003877
CoefficientsStandard Error
t Stat
-0.024842
0.037294 -0.666115
1.044523
0.270955
3.854963
P-value
Lower 95%
0.522044 -0.109207
0.003877
0.431579
Regression
Residual
Total
Intercept
X Variable 1
1
9
10
SS
0.224022
0.135673
0.359695
Upper 95% Lower 95.0% Upper 95.0%
0.059523 -0.109207
0.059523
1.657467
0.431579
1.657467
A linear beta regression is done by regressing the returns of SIA SP and the STI index. While it might not be a direct linear relationship, a positive
coefficient and a 62.3% R square provide sufficient evidence. We conclude that it is mainly due to Covid-19. By comparing the linear regression with
the -pre-covid beta regression, we see stark difference in collinearity (0.94 beta). We decided not to use the pre-covid linear regression as it would
not fairly represent the post Covid-19 market return and the return of SIA SP.
Business Overview
Industry Overview
ESG
Investment Thesis
Financial Analysis
Valuation
Risks
Cost of Equity
Rate
10.22%
12.99%
3.02%
11.61%
Weightage
50%
50%
–
Risk Free Rate
10 Year Government Bond 5 Year Average
10 Year Government Bond Spot
Rate
2.48%
2.99%
2.63%
Weightage
70.0%
30.0%
Equity Market Risk Premium
Historical Avg. Risk Premium
Linear Regression (10yr)
Rate
8.56%
7.95%
8.37%
Full Service Carrier Segment
Low Cost Carrier Segment
Comparables Capital Structure
79.5%
70.3%
79.0%
Weightage
95.0%
5.0%
100.0%
Full Service Carrier Segment
Low Cost Carrier Segment
Comparables Unlevered Beta
0.27
0.13
0.26
Current
45.0%
55.0%
100.0%
Target⁽ ²⁾
45.0%
55.0%
100.0%
81.7%
81.8%
Rate
0.44
1.04
0.90
0.91
Weightage
20.0%
70.0%
10.0%
100%
Capital Asset Pricing Model
Dividend Discount Model
Farma French 3 Factor Model
Triangulated Cost of Equity
Capital Structure
Total Debt
Market Capitalization
Total Capitalization
15,339
18,774
34,113
Debt / Equity
Levered Beta
Comparable Companies
Linear Regression - 10yr include covid period
Research Houses
Dividend Discount Model
ROE
Payout Ratio
Dividend Growth Rate
Farma French 3 Factor Model
Risk Free Rate
Market Beta
HML Beta
SMB Beta
Cost of Equity (FF3F)
Business Overview
16.35%
52.34%
8.56%
Factor
2.6%
0.2%
0.5%
0.3%
3.02%
5.0%
100.0%
SIA’s beta was calculated using (1) Linear regression, (2) Comparable companies,
and (3) Research houses. Using the list of comparable companies, we derived the
(1) median unlevered beta and levered it back (based on the debt/equity ratio of
81.8% from a 45% debt/capital) using Hamada’s formula. The resulting beta is
0.44. (2) Linear regression (Appendix) was done by regressing the return of SIA
2.6%
rd
8.4% stock and the return of STI Index. The resulting beta is 1.04. (3) We also seek 3
0.91
party resources from research houses (yahoo finance) and the resulting beta is
10.22%
0.90. A final blended weightage of were given to all 3 methods resulting in a beta of
0.91.
Corporate Tax Rate
17.0%
Capital Asset Pricing Model
Risk Free Rate
Equity Risk Premium
Beta
Cost of Equity (CAPM)
Current Price
Current Annual Dividend
Dividend Growth Rate
Cost of Equity (DDM)
6.32
0.28
8.56%
12.99%
SIA’s equity market risk premium was weighted using the historical average risk
premium and linear regression. Under the assumption that in the long term the
equity market risk premium will tend towards the average, 70% was given to the
historical risk premium and 30% for linear regression resulting in a blended rate
of 8.37%
Coefficient
0.76
0.46
0.02
Industry Overview
SIA’s cost of equity for DCF was calculated using the Capital Asset Pricing Model
(CAPM), Dividend Discount Model (DDM), and Farma French 3 Factor Model
(FF3M), with 50% weighting being placed on the CAPM and the DDM method. The
FF3M was discarded as the cost of equity came out too low. Even though the
information we used were Singapore stocks, the low cost of equity is not
representative of the airlines’ industry, which is traditionally significantly more
Weightage levered than the market on the large. The CAPM resulted in a cost of equity of
70.0% 10.22% while DDM resulted in a cost of equity of 12.99% and the final triangulated
30.0% cost of equity is 11.61%. Risk free rate is calculated based on the spot rate and the
5-year average of the 10-year Singapore Government bond (SIGB). A weighted
Weightage
95.0% average of 70-30 were given to the 5-year average and spot rate respectively.
ESG
Investment Thesis
Financial Analysis
Valuation
Risks
Cost of Debt
Interest Bearing Liabilities
Weighted Average YTM
Altman Z Score
Index Spread
Triangulated Cost of Debt
Rate
1.30%
4.28%
13.54%
4.04%
3.87%
Weightage
10%
45%
–
45%
Intrinsic Cost of Debt
Interest Bearing Liabilities
Interest Expense
Short Term Debt
Long Term Debt
Gross Debt
Implied Cost of Debt
Cost of Debt
Weighted Average YTM
Today
Weighted Average YTM
Average Maturity (yrs)
Outstanding Corporate Bonds
SIASP 3 ½ 12/02/30 Corp
SIASP 3 ⅜ 01/19/29 Corp
SIASP 3 07/20/26 Corp
SIASP 3.13 08/23/27 Corp
SIASP 3.13 11/17/26 Corp
SIASP 3 ¾ 04/08/24 Corp
SIASP 3.035 04/11/25 Corp
SIASP 3.03 03/28/24 Corp
Weighted Avg
Business Overview
Comparables Cost of Debt
2028F
226
3,551
13,847
17,398
1.3%
1.3%
2027F
221
3,458
13,513
16,971
1.3%
24-Nov-23
4.28%
2.96
YTM
3.77%
5.18%
5.31%
3.78%
3.77%
4.16%
4.11%
4.10%
4.28%
Mat Yrs
7.03
5.16
2.65
3.75
2.98
0.37
1.38
0.34
2.96
Industry Overview
Synthetic Credit Rating (Altman Z Score)
Metric
Working Capital / Total Assets
Retained Earnings / Total Assets
EBIT / Total Assets
Market Value of Equity / Total Liabilities
Revenue / Total Assets
Altman Z Score
Implied Credit Rating
Credit Risk Spread
3M SORA
Cost of Debt
Index Spreads
Credit Ratings Matrix
Aaa
Baa
5 year
2.24%
3.23%
Defualt Spread
Rrisk Free Rate
Country Default Spread
Tax Rate
Cost of Debt
ESG
Rate
0.18
0.27
0.05
0.93
0.32
Coefficient
1.20
1.40
3.30
0.60
1.00
1.63
CCC
9.8%
3.8%
13.54%
10 year
2.21%
3.20%
2.2%
2.6%
–
17.0%
4.04%
Investment Thesis
SIA’s cost of debt was calculated using interest
bearing liabilities, weighted average yield to
maturity (YTM), Altman-Z score, and Index
spreads. Looking at the Altman Z Score, it is too
low for SIA. Even though SIA has not been
formally rated by the ratings houses, Altman
score of 1.63 is too low as a result the Altman-Z
was still excluded due to it having too large a
value at 13.54%.
For index spreads, SIA in their financial reports
have identified that their debt is considered Aaa
for the majority of the debt with some being
considered Baa.
The outstanding bonds considered in the
weighted avg YTM calculation are only straight
debts. As a result, 10% was assigned to interestbearing liabilities and 45% to index spreads and
45% assigned to weighted average YTM. The
final triangulated cost of debt is 3.87%.
Financial Analysis
Valuation
Risks
Impacts of ESG Themes
Materializing all 4 ESG themes in our model…
All figures in SGDmn unless stated
2024F
2025F
2026F
2027F
2028F
Term
Status Quo
Net Income
Unlevered Free Cash Flow
2,176
1,951
2,176
876
2,162
144
2,178
533
2,246
1,439
2,290
1,754
After Initiatives
Net Income
Unlevered Free Cash Flow
2,165
1,938
2,144
842
2,105
85
2,091
444
2,124
1,315
2,126
1,588
Increase from Initiatives
Net Income
Unlevered Free Cash Flow
(11)
(13)
(32)
(34)
(57)
(59)
(87)
(89)
(122)
(124)
(164)
(166)
2028F
Term
Net Income
Overall, we see that ESG initiatives by SIA to
have a negative impact on the intrinsic
enterprise value (and subsequently net income
and unlevered free cash flow) of roughly 4.2% to
9.3%.
This is mainly due to the elevated high costs of
SAF outweigh any cost cutting initiatives that
SIA has excelled in.
Unlevered Free Cash Flow
2,500
2,500
2,000
2,000
1,500
1,500
1,000
1,000
500
500
–
2024F
2025F
Business Overview
2026F
2027F
Status Quo
After Initiatives
2028F
–
Term
Industry Overview
2024F
ESG
2025F
2026F
2027F
Status Quo
After Initiatives
Investment Thesis
Financial Analysis
Valuation
Risks
DCF Model Key Inputs
Dates
Valuation Date
First Fiscal Year End for Forecast
First Expected Cash Flow
Last Cash Flow
First Year of Forecast
Days in Period
End of 2023 Balances
Net Debt
Property Plant & Equipment
Tax Basis for PP&E⁽⁴⁾
Tax Losses
Business Overview
(YY-MM-DD)
(YY-MM-DD)
(YY-MM-DD)
(YY-MM-DD)
(YYYY)
2023/11/24
2024/03/31
2024/09/30
2023/09/30
2024
365
1,394
27,687
19,274
550
Industry Overview
Valuation
Shares Outstanding
Current Stock Price
Total Cash on Hand
Terminal Growth Rate
Terminal EBITDA Multiple
Weighted Average Cost of Capital (WACC)
Terminal Growth Greater Than or Equal To WACC?
Other Inputs
First Year Tax Depreciation⁽¹⁾
Blended Tax Depreciation Rate⁽¹⁾
First Year Accounting Depreciation⁽²⁾
Useful Life: Existing Assets⁽³⁾
Useful Life: New Assets⁽³⁾
ESG
(FD mns)
(SGD/sh)
(Years)
(Years)
Investment Thesis
2,971
6.32
13,945
2.5%
6.1x
8.1%
No
75.0%
6.3%
100.0%
15.25
22.00
Based on EY Worldwide Capital and Fixed
Assets Guide 2023, blended Tax Depreciation
Rate were calculated by the remaining 25% tax
depreciation rate divided across the remaining
years of forecasts.
According to SIA, depreciation is done on a
straight line basis. SIA has an average fleet age
of 6 years and 9 months which translates to
roughly 15 years and 3 months of useful life for
the existing fleet. We average new assets have a
useful life of 22 years. We only consider aircraft
for depreciation calculation.
Terminal EBITDA of 6.1x was used based on
Capital IQ industry median during the precovid level. Tax basis for PPE was calculated
using the formula:
Financial Analysis
Valuation
Risks