UOBKH nudges SIA target price up S$0.10 on second quarter optimism
[SINGAPORE] UOB Kay Hian (UOBKH) on Thursday (Jul 16) marginally increased its target price for Singapore Airlines (SIA) on optimism of a rebound in the airline’s profitability in the second quarter.
This expected improvement was driven by “effective cost pass-throughs” and the flag carrier’s “comfortable fuel hedging position”. The brokerage, however, maintained a “hold” call.
UOBKH also noted that June 2026 operating data for SIA was “in line” with projections. Passenger and cargo loads rose 4.1 and 5.1 per cent, respectively.
UOBKH analyst Roy Chen said: “We now forecast SIA’s Q1 bottom line to be around breakeven, reflecting higher fuel costs amid the US-Iran war and a major drag from Air India.”
Chen’s optimism for a second-quarter recovery in profitability was despite a rebound in fuel prices after the effective end of the US-Iran ceasefire led to more volatility in the Strait of Hormuz.
Moderated loss estimate for Air India
The brokerage’s updated estimate for the first quarter of FY2027 now ranges from a net loss of S$90 million to a net profit of S$110 million.
The midpoint of S$10 million implies a broadly breakeven quarter, a notable upward shift from the previously estimated net loss of S$20 million to S$300 million.
This revision was primarily due to a moderated loss estimate for Air India, said UOBKH, reflecting the Indian rupee’s slower depreciation against the US dollar during the quarter.
Still, this breakeven expectation marks a decline compared to the reported net profits of S$186 million in the first quarter of the 2026 financial year and S$441 million in the fourth quarter of 2026.
SIA on Friday responded to questions from the Securities Investors Association (Singapore), saying that its investment in Air India gives it access to growth opportunities that cannot be fully realised through a single-hub model.
The association had asked the airline to elaborate on the role it expects to play in Air India’s turnaround.
Second quarter rebound
Despite ongoing volatility in the Middle East, UOBKH expects a significant earnings rebound of around S$450 million in the second quarter. This represents a marked year-on-year improvement from the low base of S$52 million recorded in the second quarter of 2026.
The recovery is expected to be supported by cost pass-throughs via higher airfares and freight rates, alongside SIA’s relatively advantageous fuel hedging positions compared with its regional peers.
SIA has also secured its fuel needs to cushion upside risk to jet fuel prices, having hedged the following projected consumption at favourable prices, noted UOBKH.
Fuel use for FY2027 is 49 per cent in the second quarter, 50 per cent in the third quarter and 32 per cent in the fourth quarter.
Valuation and risks
UOBKH raised its FY2027 earnings forecast for SIA by 22 per cent to about S$1.2 billion, representing a 3 per cent year-on-year growth.
Consequently, the target price was nudged up to S$6.76 from S$6.66, based on 1.28 times the forecast FY2027 price-to-book ratio.
The brokerage highlighted that SIA remains a preferred regional aviation pick due to its strong balance sheet, yield of 4.6 to 4.9 per cent in FY2027 to FY 2028, and proven management track record.
However, it prefers a better entry point given current market uncertainties and the expected first-quarter earnings weakness.
UOBKH outlined several key risks that could negatively impact SIA’s near-term performance, including long-lasting unrest in the Middle East that keeps fuel prices elevated.
A weaker global economy could also reduce demand for air travel and cargo, while a prolonged financial drag from Air India operations – estimated by some experts to last as long as 2030 – could be a further risk.
