Singapore Airlines to Continue to Benefit From COVID-19 Relaxation Tailwinds, FVE Raised to SGD 5.60

We raise our fair value estimate for Singapore Airlines, or SIA, to SGD 5.60 from SGD 4.76 with a pickup in air travel, as COVID-19 rules relax, leading to better load factors. The strength of the recovery exceeded our expectation with April load factor up to 72.7% for the group. As the airline adds flights, we now expect SIA to reach 81% of pre-COVID-19 capacity by end fiscal 2023, bringing forward our recovery expectation by one year. However, we believe net profit improvement will be pressured by high fuel costs and rising wages. This is expected to cap operating margin at 4.4% and 3.8% in fiscal 2023 and 2024, respectively, which is below 2005-2020 average of 5.7%. We still see SIA as being fairly valued and prefer ST Engineering as a proxy to the recovery in air travel.