Singapore Airlines: A Goldilocks Moment?

Singapore Airlines (SIA) has been upgraded from “Reduce” to “Hold,” driven by a combination of factors that suggest improved financial performance in the near term. Analysts forecast a core net profit of S\$550 million to S\$600 million for the October-December 2024 quarter (3QFY3/25F), an improvement from the S\$367 million average per quarter in the first half of FY25. The main drivers include declines in jet fuel prices, seasonal passenger demand, and increased cargo yields.

SIA’s mainline carrier, SQ, is expected to shine with an impressive 5.8% quarter-on-quarter rise in revenue passenger kilometers (RPK) demand and a 2% increase in passenger load factor (PLF) to 87.1%. Scoot, the low-cost carrier (LCC), is also projected to benefit from its extensive network to China during the holiday travel season. On the cargo front, yields from North Asia to Europe and the US are anticipated to rise due to peak seasonal demand.

An exceptional gain of S\$1.1 billion is expected from the sale of Vistara airline to Air India, completed in November 2024. While conservative forecasts assume a final dividend of 18 cents per share, there is potential for a surprise dividend payout in May 2025, supported by the exceptional gain.

Despite potential downside risks, such as trade tariffs under “Trump 2.0” and higher jet fuel prices in early 2025, analysts believe these are balanced by upside opportunities. The stock’s target price remains at S\$6, pegged to a P/BV of 1.1x.

Capital A Berhad: A Recovery in Progress

Capital A Berhad (CAPITALA MK), formerly known as AirAsia, is not rated in this report. The company’s stock is priced at RM0.85, with a market capitalization of US\$819 million. Its core price-to-earnings ratio (P/E) is expected to improve from 10.4x in CY24F to 6.7x in CY25F, reflecting a recovery in earnings. Analysts project a 65.8% three-year compound annual growth rate (CAGR) in earnings per share (EPS), despite a negative ROE of -5.0% in CY24F and -9.8% in CY25F.

Capital A has no dividend yield forecasted for the next two years, and its EV/EBITDA is projected to rise significantly to 61.8x in CY25F. This signals a challenging path to profitability, but the growth potential remains attractive for speculative investors.

InterGlobe Aviation: A Steady Performer

InterGlobe Aviation (INDIGO IN), operating as IndiGo, is another airline not rated in the report. Its stock price stands at Rs4,326.30, with a market capitalization of US\$19.1 billion. The company is forecasted to achieve a P/E of 20.9x in CY24F and 26.1x in CY25F, indicating robust profitability.

IndiGo’s EPS is expected to see a dramatic increase from Rs22.00 in CY25F, reflecting strong operational performance. The company’s EV/EBITDA is projected at 11.3x in CY25F, with a modest dividend yield of 0.9%. This positions IndiGo as a steady performer in the airline sector, appealing to long-term investors.

Asia Aviation PCL: Growth Amidst Challenges

Asia Aviation PCL (AAV TB) is priced at THB2.02, with a market capitalization of US\$766 million. The company is expected to maintain a P/E of 7.4x in both CY24F and CY25F, supported by a 54.8% three-year EPS CAGR. Its ROE is forecasted at 40.8% in CY24F and 26.5% in CY25F, showcasing its resilience.

While the company has no dividend yield forecasted, its EV/EBITDA of 2.6x in CY25F makes it an attractive option for growth-focused investors.

Air Arabia: A Consistent Performer

Air Arabia (AIRARABI UH), based in the UAE, is priced at AED3.15 with a market capitalization of US\$4 billion. Analysts forecast a stable P/E of 10.5x for both CY24F and CY25F. The company’s EPS is expected to grow modestly, with ROE at 18.3% in CY24F and 16.9% in CY25F.

Investors can expect a dividend yield of 5.9% in CY25F, making Air Arabia a consistent performer with steady returns for income-focused investors.

Ryanair: A European Leader

Ryanair (RYA ID) remains unrated but offers significant potential with a market capitalization of US\$22.4 billion. Its stock price is €20.20, and the company is forecasted to achieve a P/E of 10.9x in CY24F and 13.9x in CY25F. Analysts project a strong ROE of 24.7% in CY24F, which slightly declines to 21.2% in CY25F.

With a 2.0% dividend yield forecasted in CY25F, Ryanair continues to lead the European low-cost carrier market.

easyJet: High Growth Prospects

easyJet (EZJ LN) is well-positioned with a stock price of £5.27 and a market capitalization of US\$4.96 billion. Its P/E is expected to improve from 8.1x in CY24F to 7.4x in CY25F. The airline anticipates an ROE of 16.1% in CY24F and 15.9% in CY25F.

With a dividend yield of 2.9% projected for CY25F, easyJet offers a combination of growth and income potential for investors.

Southwest Airlines: A Resilient US Carrier

Southwest Airlines (LUV US) is priced at US\$31.00, with a market capitalization of US\$18.37 billion. Its P/E is forecasted to drop from 36.6x in CY24F to 18.5x in CY25F, reflecting an anticipated recovery in earnings. The company’s ROE is expected to rise to 10.0% in CY25F, supported by an EV/EBITDA of 7.2x.

With a 2.4% dividend yield in CY25F, Southwest remains a resilient choice among US airlines.

Turkish Airlines: Strong Fundamentals

Turkish Airlines (THYAO TI) is priced at TRY321.50, with a market capitalization of US\$12.3 billion. The airline boasts a low P/E of 4.3x in CY24F and 4.1x in CY25F. Its ROE is forecasted at 21.1% in CY24F and 15.8% in CY25F, reflecting robust operational efficiency.

While no dividend yield is expected, Turkish Airlines remains an attractive option for value investors due to its strong fundamentals.