Brokers' take: SIA in firm position for eventual air travel recovery, although recovery likely priced in, says DBS

SINGAPORE Airlines (SIA) is in a firm position to wait for a recovery in air travel due to its strong cash position after it issued its S$6.2 billion mandatory convertible bonds (MCBs), DBS Group Research said in a research note on Wednesday.

The research team, however, noted that the longer-term recovery has likely been priced in, and upgraded its call on the flag carrier to " hold" from " fully valued" and raised its target price on the counter to S$4.90 from S$3.60.

Shares of SIA were trading at S$5.09 as at 3.08pm on Wednesday, down S$0.02 or 0.4 per cent.

SIA' s MCBs, which saw strong support from controlling shareholder Temasek, will boost the carrier' s pro forma cash balance to around S$14 billion, which provides it with a firm buffer to navigate through the current crisis and fund the capital expenditure for its fleet renewal programme, DBS said.

But the research team said the MCBs could also be highly dilutive on the counter' s share price, regardless of whether they are eventually redeemed or converted, thus it added that SIA will likely look to substantially redeem most or all of its MCBs, including potentially refinancing them using straight debt or equity, once international travel recovers and the global pandemic stabilises.