Maybank downgrades the airline from a &lsquo hold&rsquo to a &lsquo sell&rsquo , while CGSI updates its rating from &lsquo hold&rsquo to &lsquo reduce&rsquo

 

[SINGAPORE] Analysts downgraded their calls on Singapore Airlines (SIA) : C6L -7.37% and slashed price targets for the national carrier after its profit plunged 58.8 per cent for its first quarter ended June.

 

The counter dropped as much as 8.7 per cent to S$6.94 after market open - its lowest level in more than three weeks - with 2.6 million shares changing hands. 

 

By the close, it was down 7.37 per cent to S$7.04. With some 38.5 million shares transacted, it was one of the most heavily traded counters by volume on the Singapore Exchange. 

 

Maybank downgraded the airline to &ldquo sell&rdquo from &ldquo hold&rdquo , lowering its target price to S$6.75 from S$6.85, and CGS International (CGSI) downgraded SIA to &ldquo reduce&rdquo from &ldquo hold&rdquo , cutting its target price to S$6.80 from S$6.88. DBS Group Research maintained &ldquo hold&rdquo and raised its target price to S$6.40 from $6.30.

 

Citing weaker-than-expected earnings from SIA and its share of losses for Air India, which SIA owns a 25.1 per cent sake in, CGSI analyst Raymond Yap said on Monday: &ldquo We downgrade our recommendation on SIA to reduce, and advise investors to take profit.

 

&ldquo SIA&rsquo s share price is now trading at a historical price-to-book-value of 1.45 times, close to three standard deviations above the mean since 2011, which we view as very rich.&rdquo

 

Similarly, Maybank analyst Eric Ong on Monday noted that Air India losses dragged on SIA&rsquo s bottom line in spite of lower fuel prices supporting operating performance. 

 

&ldquo We also cut our FY2026 to FY2028 (estimates for) core earnings per share by 25 to 29 per cent to factor in rising non-fuel costs and weaker cargo business. We think the share price has run ahead of its fundamentals and downgrade SIA,&rdquo Ong said.

 

Meanwhile, DBS Group Research analyst Jason Sum expects SIA&rsquo s core earnings to normalise in FY2026 and eventually improve in FY2027.

 

Stabilising passenger yields in the medium term and a more benign jet fuel environment could provide tailwinds for the group, Sum said.    

 

Air India losses could widen

SIA&rsquo s share of losses from Air India could increase, CGSI&rsquo s Yap said. 

 

He estimates that the losses could be S$250 million for FY2026 and S$200 million for FY2027 &ndash wider than S$75 million previously forecast.

 

While Air India&rsquo s weak results for Q1 FY2026 &ndash which dragged on SIA&rsquo s bottom line &ndash could have been due to one-off compensation provisions for the Jun 12 Ahmedabad plane crash, its subsequent financial performance could remain weak, Yap said.

 

This is in light of the 15 per cent cut in Air India&rsquo s wide-body international flights and 5 per cent reduction of its narrow-body flights in the immediate aftermath of the crash, Yap said, citing Reuters data.

 

DBS Group Research&rsquo s Sum said that Air India will likely remain a &ldquo near-term drag&rdquo for SIA. 

 

&ldquo (Its) losses were significantly deeper than expected and are unlikely to ease in the near term as the airline navigates a complex restructuring alongside reputational damage,&rdquo he said. 

 

However, Air India&rsquo s losses may eventually narrow amid ongoing transformation initiatives which could reduce its drag on SIA&rsquo s bottom line, he said. 

 

Uncertain outlook for cargo business

Moving forward, SIA&rsquo s demand for air cargo could be affected by tariff uncertainty, Maybank&rsquo s Ong said.

 

He observed that the carrier&rsquo s air cargo demand had softened in June after previously being supported by front-loading activity as businesses pre-empted US tariffs.

 

&ldquo We believe the uncertainty over how the Trump Administration&rsquo s trade policies will evolve could hold back critical business decisions that drive economic activity, and with it the demand for air cargo.&rdquo  

 

He noted that cargo flown revenue had slipped 1.9 per cent year on year as yields deteriorated 4.4 per cent, which was &ldquo worse than expected&rdquo . 

 

Potential tailwinds    

Jetstar Asia&rsquo s closure on Jul 31 could present an opportunity for SIA as the group will ramp up capacity across various Asian destinations to fill the service gap after the budget airline exits, Maybank&rsquo s Ong said.

 

SIA&rsquo s low-cost arm Scoot will commence operations to Labuan Bajo and Medan, as well as Okinawa, subject to regulatory and operational approvals, he said. 

 

Additionally, air travel demand is likely to stay healthy for Q2 FY2026 across most regions in view of the summer peak season, Ong added. 

 

DBS Group Research&rsquo s Sum expects SIA to be able to manage costs well, on the back of lower prices for jet fuel, which usually covers 20 to 30 per cent of operating costs. 

 

This could be a tailwind for SIA and help offset margin pressures, Sum said.  

 

Moreover, cost saving opportunities have emerged and the airline has enjoyed efficiency gains in customer service, he added.