SIA

SIA: CLSA's channel checks suggests that the air transport market should remain tough, after confirmation on a lack of rebound in corporate demand. Further, the corporate travel budgets and policies which tightened in 4Q 2011 have not loosened whilst class downgrades are still occurring. SIA's forward capacity growth of 3% y/y matches the forward booking numbers. Asian Air cargo volume continues to lag global trade, failing to bounce off the bottom, despite more positive numbers from IATA globally, where the M.E, Latam and Europe grew at faster rates. Global trade has grown at 3.5% 3-year CAGR in volume terms whilst Asian Airfreight has shrunk by 3.9%. However with the US Government shutdown, there is some risk of customs clearance of goods at ports being delayed. This could be the catalyst required to disrupt supply chains and stimulate air cargo demand whilst inventory levels are low. SIA’s issues are factored into its valuations, at a forward 0.89 P/B valuation compared to the 2-year average of 0.95x and a trough 0.86x. However, given there has been no demand shock, there seems to be bigger structural issues at play.