SIA

SIA: DBSV maintains Buy with $18.50 TP pegged to 1.5x FY11 P/B, citing sanguine earnings outlook. Expect SIA’s core earnings to rebound nearly seven fold in FY11, on higher carriage, load factors and yields, to $1.4b and by 11% in FY12 to $1.57b, primarily driven by higher air travel demand….

Flushed with cash, grp has a few options to enhance shareholder value. As at end Sep 2011, SIA’s net cash position exceeded $4.5b and with an improving earnings and cash-flow outlook, cashhoard will continue to grow….

In order to improve its ROE (projected to be around 9%-10%), and enhance shareholder value, expect SIA to either 1) increase dividend payout to FY07 and FY08 levels of S$1 per share, 2) embark on a capital reduction exercise (like in FY0 or 3) acquire a stake in another airline to provide a boost to its medium to long term earnings (China Eastern Airlines?)….

Maintain Buy, but lower FY11 earnings by 7.3% to reflect recently announced fines for
its Cargo business.