UOBKH downgrades Singapore Airlines to ‘sell’ on jet fuel price surge
The brokerage is also ‘largely neutral’ on Air India’s top-up request
UOB Kay Hian has lowered its rating for Singapore Airlines (SIA) to a "sell" after Middle East tensions escalated, causing jet fuel prices to surge. The brokerage firm cited drone attacks by Iran-backed Houthis on a key Saudi Arabia pipeline, which bypassed the Strait of Hormuz, and the postponement of planned talks between Gulf Arab states and Iran as contributing factors to the fuel price increase.
Breton and US crude oil prices were around US$105 and US$101 per barrel on Friday, respectively, while jet fuel reached US$190 per barrel by Tuesday, nearing the April highs of US$200 per barrel and approximately 58% higher than the US$120 per barrel price in late June. UOBKH reduced SIA's 2027 and 2028 earnings forecasts by 21% and 5%, respectively, bringing them to S$831 million and S$961 million.
The firm also trimmed its price target for SIA shares from S$6.71 to S$6.16. Analyst Roy Chen noted that while SIA's 40-50% fuel hedging position may provide some protection against its regional peers, its earnings outlook remains exposed to further fuel-price volatility. UOBKH suggested that Air India, in which SIA holds a 25.1% stake, would face greater exposure to higher jet fuel prices and associated operational disruptions due to its proximity to the conflict-affected region.
The Indian carrier has been struggling with factors such as higher fuel prices, Pakistan airspace restrictions, and the crash of flight 171 last year, which have impacted SIA's profitability. Air India is seeking around US$1.5 billion in equity from its owners, with SIA expected to provide about US$375 million. UOBKH remained "largely neutral" on Air India's equity top-up request, emphasizing that its updated forecast for SIA includes an estimated fuel-hedging gain of nearly US$400 million and an estimated net loss contribution of US$250 million from Air India.
The brokerage advised investors to wait for a "better entry point" and highlighted SIA's strong operational record and healthy balance sheet.
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- UOBKH downgrades SIA to ‘sell’ as jet fuel price nears all-time high businesstimes.com.sg
