Singapore Airlines off highs; Aug data show passenger strength

At 11.50 am, SIA was up 0.20 sgd or 1.39 pct at 14.60, off an initial high of 14.70, on volume of 1.48 mln shares.

The Straits Times Index rose 21.01 points to 2,542.92.

The airline said after the market closed Friday that its passenger load factor increased to 79.7 pct in August from 76.4 pct a year before as capacity grew 2.4 pct. However, its cargo load factor declined for the second consecutive month, to 61.5 pct from 61.6 pct.

Both JP Morgan and Merrill Lynch recognized the strength in passenger demand in SIA's latest operating statistics.

JP Morgan, which has an "overweight" call on SIA with a target of 15.00 sgd, said the data "show a reasonable result for SIA's peak summer month."

"The main risk to the price target would come from a further sharp rise in oil prices that could hurt global economic growth," JP Morgan analyst Peter Negline said in a note.

Merrill Lynch, on the other hand, maintained its "neutral" rating on the stock, although lower fuel prices prompted a slight increase in its profit forecasts over the next three years.

"We increase our earnings forecasts for years to March 2007-2009 by an average 3 pct due to a reduction in our jet fuel assumption from 90 usd to 85 usd per barrel," Merrill Lynch analyst Paul Dewberry told clients in a note.

The brokerage now expects SIA to post 1.60 bln sgd in net profit for the current year to March 2007 and which should drop to 1.42 bln the following year, before recovering slightly to 1.49 bln in the year to March 2009.

"We believe economic concerns, risk of budget airlines entering the Kuala Lumpur route and increasing capex will more likely cap the stock," he said.

Given unlikelihood of a major restructuring in the near term, Dewberry said SIA should trade at a discount to its sum-of-the-parts value of 15.20 sgd.