OCBC starts SIA at buy; target $12.59

OCBC Investment Research has initiated coverage of Singapore Airlines (SIAL.SI) with a buy rating and a target price of $12.59.

OCBC said that SIA’s share price had fallen 27% from this year’s peak in January, along with the rest of the aviation sector.

“While the threat of recession is very real, the market seems overly eager to price a recession into SIA’s share price,” OCBC said.

It noted that SIA has faced competition from global legacy airlines, low-cost carriers and Middle Eastern carriers for years and it has emerged relatively unscathed.

SIA has also successfully maintained its standing as a premium carrier and probably has the strongest balance sheet among airlines to weather downturns, OCBC said.

It added that SIA is currently planning the launch of a low-cost carrier, a wholly-owned subsidiary, in May 2012 and this new venture could provide the group with the next leg of growth if cannibalization effects can be minimized.

At 10:36 a.m., SIA shares were up 0.8% at $11.48.