Disaster for SIA share price

As the year-end festive season approaches, investors of Singapore Airlines (SIA) have little to cheer about as SIA share price plunged to epic low of $9.17 on 30 October 2018. The last times that SIA share price was traded at such abysmal level were during the 2001’s terrorist attacks in United States and 2003’s SARS outbreak. Both events were black swan events that affected the industry immensely and changed the aviation landscape forever. But hey we are not having any crisis now, aren’t we?

As one of the major components among the prestigious Straits Times Index (STI), SIA is one of the biggest blue chips in the stock market. But investing in this leading light of SGX is not so straightforward as challenging operating environment and industry shifts make this stock highly unpredictable.

Given that SIA is the pride of our nation, can investors really sleep well with its stock? Are there any dark forces behind the recent meltdown of SIA share price? In this article, I will share my insights on the prospects for SIA share price and also explain why the ROE has always been terribly low.

Big boys fled SIA shares?

A review of market data on institutional funds revealed an ominous trend for SIA share price. For four consecutive months (July – September 2018), SIA was among the top ten institutional net sell list. The most ferocious decline of SIA share place took place in July 2018, which saw SIA shares plunging from $10.94 to $9.67. The decline coincided with the massive net selling by institutional funds.

The big boys continued to sell SIA stocks until September. By October, SIA shares managed to stabilize at price range between $9.20 to $9.50.

Lightning struck twice for SIA share price

From a high of $11.70 in May 2018, SIA share price crashed to the current $9.30. Within the span of 7 months, SIA share price corrected by a whopping 20%. The stunning fall of SIA share price came on the back of two consecutive double digits decline in net profits. In 1QFY2018, the Group net profit fell to $140 million (-$198 million or -58.6% lower year-on-year). 2QFY2018 results were even worse, with net profit falling to $56 million, $237 million (-80.9%) lower year-on-year.

For both quarters, rising fuel cost was cited as the key culprit for the poor showing. Indeed, for 1HFY2018/19, expenditure increased $531 million to $7,481 million due to increase in fuel cost (+$379 million or +20.4%). Apart from the hike in fuel cost, SIA also took a hit from the asset impairment loss in its Virgin Australia venture ($122 million).

To put things into perspective, SIA share price would always [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]

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