Is this the beginning of the end for SIA share price? Amid the global coronavirus outbreak, SIA share price plummeted to new lows not seen even during the SARS period in 2003. During the SARS period, SIA had also cut flight capacity and put staff on no-pay leave. Even so, SIA share price did not drop below $8.00. Given that the number of Covid-19 infections have yet to peak, how low will SIA share price go?
In a reminder of how dreadful the situation is, Singapore budget airline, Jetstar Asia had grounded its entire fleet while Singapore Airlines cuts capacity by half. At Price/Book Value of just 0.65, SIA share price is currently trading way below its book value. But before you go bargain hunting, beware of catching a falling knife.
Amazingly, during the SARS of 2003, SIA still managed to clock in a decent amount of profits. But this time round, I expect SIA to book its first ever annual loss due to the rapid shut down of every major market by governments in a bid to stop the infection spread. Thus, expect a massive bout of meltdown in SIA share price, possibly to $2.00 in the coming days.
The problem for SIA share price is that the current crisis is made worse by the plunge in oil price. Typically, a drop in fuel price bodes well for airlines because this component make up the second largest expense for airlines. However, SIA has a practice of hedging oil price to provide stability to fuel costs. For FY2020/21, the Group has hedged 51% in MOPS and 22% in Brent at weighted average prices of USD74 and USD58 per barrel respectively. If oil price persists at current price, there will be huge impact to the profit and loss of SIA.
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 trapped in Ring of Fire
Investors must be fretting whether the current SIA share price will be the “new normal”. There are many analysts who argue that SIA share price will definitely bounce back to the $10 to $11 level. Rightfully, that should be the level that SIA share price should belong to. But there are precedents in SGX indicating this may not be so. A case in point will be CapitaLand, which used to trade at $7 to $8 level prior to the Great Financial Crisis of 2008. A decade later, CapitaLand had never recapture that giddy heights.
Investors must be prepared for a prolong period of suffering for SIA share price as [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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