On 22 November 2022, I wrote that SIA share price could continue its bullish form in 2023. Indeed, the counter went on a rampage, surging from $5.45 to the recent $7.30. Year-to-date, SIA share price had rocketed nearly 33%, putting to rest any lingering doubts of another false dawn for the Singapore carrier.
The explosive form of SIA share price came on the back of the announcement of record profits in its 76-year history. The Group recorded a massive net profit of $2.1 billion for FY2022/23, an incredible turnaround from the loss of $948 million incurred in last year. Revenue surged to $17.8 billion, up from $7.6 billion. The ultra-stellar result led to the Group rewarding its staff with staff bonus of up to 8 months. The gesture of goodwill was to reward the staff for their sacrifice (pay cuts) made during the pandemic.
Evidently, SIA’s decision to shore up liquidity and reinstate capacity paid dividend as the airline was the first to capitalize on the pent-up demand for air travel. In March 2023, the passenger capacity reached 79% of pre-COVID levels. Question now: is SIA share price getting ahead of its fundamentals?
Given that the EPS is $0.35, SIA share price is currently being traded at PE of 20.9, which is on the high side. Even if the Group restores the capacity to 100% of pre-pandemic and records full-year profit at $2.5 billion for FY2023/24, I doubt that SIA share price could hit $10 as the rights issue of March 2020 had led to the issuance of 1.778 billion of new shares.
Besides the rights issue, SIA also issued two tranches of Mandatory Convertible Bonds (MCBs) in 2020 and 2021. The subscriptions for both MCBs were poor – with only 59% and 59.8% take up rates. Temasek had to procure the remaining Rights MCBs for both occasions. The results suggested that the MCB is unpopular among investors, possibly because of the structure of the bonds. Both are zero coupon bonds – no interest payments but SIA will redeem the bonds at a premium to issue price. Furthermore, SIA can redeem the bonds in whole or in part on every 6th month anniversary of the issue date. With such a structure, there will be a lack of long-term visibility for those seeking fixed income pay outs from the MCB.
Previously, I wrote that it is unlikely that the national carrier will let the $3.5 billion and the $6.2 billion MCBs matured. In doing so, it would be highly dilutive to future SIA share price. True enough, the management announced its intention to redeem 50% of the tranche of Mandatory Convertible Bonds that were issued in June 2021 (2021 MCBs). The accreted principal amount payable, being 108.243% of the principal amount of the 2021 MCBs, will be approximately $3.4 billion. This redemption will be carried out on a pro-rata basis, with the redemption amount to be paid to eligible bondholders on 26 June 2023
The 50% redemption of the 2021 MCBs came on the back of the full redemption of the 2020 MCBs in December 2022. The accreted principal amount paid by SIA amounted to $3,860 million. The redemptions signalled that the management is confident in its growth prospect, thereby lending strength to SIA share price.Note that this is an opinion article and not meant to be a financial advice. Please do your due diligence or engage financial advisors before investing in the stock market. Furthermore, I am not vested and have never invested in SIA before. Whether SIA share price will surge or collapse has no impact on me. Thus, this article is not meant to induce readers to make any form of investment decisions.
SIA share price in mission impossible?
In my view, the only way for SIA share price to rocket to $10 is [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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