Company Name: SINGAPORE AIRLINES LTD
| Research House: Citigroup | Price Call: SELL | Target Price: 9.40 |
Citi lowered its target price on Singapore Airlines to $9.40 from $10.40 and maintained its ‘sell’ rating to reflect the Singapore flagship carrier’s challenges.
SIA shares were down 1.6% at $10.63 on Tuesday. The stock has risen around 5% so far this year versus the 13% gain in the broader Straits Times Index.
Citi lowered its 2013-2014 fiscal year earnings estimates by 70-73%, factoring in lower yields and higher fuel costs.
SIA faces downward pressure on premium yields, aggressive market share gains by low-cost carriers and growing presence of Gulf carriers in Asia, while weak demand and high fuel costs are squeezing margins, Citi said.
Citi added that SIA’s strategy to tap low-cost airline demand by setting up independently-managed airlines, Scoot and Tiger Airways Holdings, may have the unintended effect of hollowing out its own economy class, while limiting flexibility to react to new opportunities and demand patterns.
In the near term, Citi expects SIA to report first-quarter net profit of $50 million as weak demand is offset by temporarily lower jet fuel costs. SIA will report its March-June result on July 25.
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