SIA

SIA: Citigroup believes SIA may de-rate and fall below its 1x P/B support level as its strategy lacks coordination and is ineffective. It notes the carrier faces downward pressure on premium yields and from the growing presence of Gulf carriers in Asia, while weak demand and high fuel costs squeeze margins. Its strategy to tap low-cost airline demand by setting up independently-managed airlines, Scoot and Tiger may also have the unintended effect of hollowing out its own economy class while limiting flexibility to react to new opportunities and demand patterns. The house expects SIA to report 1QFY13 net profit of $50m vs consensus estimates of $78m, and cuts FY13-14 earnings forecasts by 70-73% on lower yields and higher fuel costs, noting its estimates are 35-46% below the street. Citigroup is lowering its target to $9.40 from $10.40, based on 0.85x FY13 P/B from the previous 0.97x FY12 P/B, and keeps a Sell call. The stock is currently down 1.9% to $10.60.