CGS International
July 28, 2025

Singapore Airlines Faces Turbulence Ahead: Downgrade, Profit Taking Advised Before Dividend Ex-Date

Executive Summary

CGS International has downgraded Singapore Airlines (SIA) from “Hold” to “Reduce,” citing underperformance in the latest quarter due to significant losses from its Air India stake and cautioning investors to take profits before the upcoming final dividend ex-date. Despite SIA’s strong core Singapore operations, elevated valuations, and ongoing challenges with Air India’s recovery post-accident, signal a less favorable risk-reward outlook. The target price has been cut slightly to S\$6.80, with anticipated downside risk for the stock.

Key Highlights

• 1QFY26 core net profit shrinks 56% QoQ to S\$186m.
• SIA’s share of Air India’s losses surged to S\$130m in the quarter.
• Singapore operations delivered a strong 42% QoQ rise in operating profit, offset by Air India’s losses and a decline in interest income.
• Valuations at historical highs: P/BV at 1.45x, near 3 standard deviations above mean since 2011.
• FY26-27F core EPS forecasts cut by 10-13%, FY28F by 20%.
• Recommendation: Take profit before 30 Scts final DPS ex-date on 8 Aug 2025.

Singapore Airlines: Quarter Under Review

Singapore Airlines reported a disappointing 1QFY26, with core net profit plunging 56% quarter-on-quarter to S\$186 million. The core drag came from SIA’s 25.1% stake in Air India, which contributed an estimated S\$130 million in losses, a sharp increase from the S\$40-50 million in the prior quarter. This deterioration was compounded by the absence of prior tax provision write-backs and lower interest income due to reduced cash balances and falling rates.

Despite these headwinds, SIA’s Singapore-based passenger and cargo operations remained robust:

• 1QFY26 operating profit for Singapore operations increased 42% QoQ to S\$405m, driven by higher passenger volumes and lower jet fuel costs (average jet fuel price dropped from US\$90/bbl in 4QFY25 to US\$81/bbl in 1QFY26).
• USD depreciation (from S\$1.35 to S\$1.30) benefited SIA, as two-thirds of costs are USD-denominated.
• Cargo demand rose 8.4% QoQ due to frontloading before US import tariffs, narrowing losses in the cargo division.

Valuation and Recommendation: Time to Take Profits

SIA’s share price has surged in anticipation of the 30 Scts final dividend for FY25, but CGS International advises investors to consider profit-taking before the ex-date on August 8, 2025. After the prior ex-date for FY24’s 38 Scts final DPS, SIA’s share price corrected significantly. With the P/BV ratio at 1.45x (almost 3 standard deviations above the long-term mean), the stock is viewed as richly valued.

While Air India’s poor results in 1QFY26 were partly attributed to one-off compensation for a major crash in June 2025, ongoing reductions in flight capacity and uncertain demand recovery could prolong financial weakness. SIA’s share of Air India’s losses is expected to widen to S\$250m for FY26F and S\$200m for FY27F (up from a previously assumed S\$75m annually).

Downside catalysts include potential consensus earnings downgrades, while upside risk would require a faster-than-expected Air India recovery.

Financial Summary Table

Detailed Segment Performance

Passenger Airline Business

• Full-Service Carriers (SIA & SilkAir):
  • ASK (1QFY26): 35,029m (+4.2% YoY, +0.6% QoQ)
  • RPK: 30,336m (+4.5% YoY, +1.7% QoQ)
  • Passenger Load Factor: 86.6% (up 0.2ppt YoY, up 0.9ppt QoQ)
  • RASK: 9.53 cts/ASK (-3.2% YoY, -2.4% QoQ)
  • Pax yield: 11.00 cts/RPK (-3.5% YoY, -3.5% QoQ)
  • PLF spread: 5.7% (down 0.8ppt YoY, up 1.7ppt QoQ)
  • Passengers carried: 6,822,000 (+5.8% YoY, +2.5% QoQ)
  • Core EBIT: S\$219.4m (-12.4% YoY, +39.9% QoQ)
• Low-Cost Carrier (Scoot):
  • ASK: 9,201m (-0.1% YoY, -0.9% QoQ)
  • RPK: 8,419m (+2.7% YoY, +1.9% QoQ)
  • Passenger Load Factor: 91.5% (+2.5ppt YoY, +2.5ppt QoQ)
  • RASK: 5.60 cts/ASK (-1.8% YoY, -10.1% QoQ)
  • Pax yield: 6.10 cts/RPK (-4.7% YoY, -12.9% QoQ)
  • Negative PLF spread widened to -6.9% (from -4.8% YoY, -1.0% QoQ)
  • Passengers carried: 3,448,000 (+9.2% YoY, +5.0% QoQ)
  • Core EBIT loss: –S\$38.5m (loss widened 36.4% YoY, 496.6% QoQ)

Cargo Business

• AFTK: 2,706m (+4.2% YoY, +1.6% QoQ)
• RFTK: 1,540m (+2.8% YoY, +8.4% QoQ)
• Cargo Load Factor: 56.9% (-0.8ppt YoY, +3.6ppt QoQ)
• RAFTK: 19.63 cts/AFTK (-5.7% YoY, +4.8% QoQ)
• Cargo Yield: 34.50 cts/FTK (-4.4% YoY, -1.7% QoQ)
• Core EBIT loss: –S\$4.7m (vs +S\$18.7m YoY, but improved from –S\$33.9m QoQ)

ESG Initiatives and Performance

• SIA is targeting net zero carbon emissions by 2050, with a multi-pronged approach:
  • Reduce fuel consumption through a younger, more efficient fleet and operational improvements.
  • Increase use of sustainable aviation fuels (SAF); plans for neat SAF to be 5% of fuel by 2030, aligned with Singapore government mandates.
  • Offset remaining emissions through carbon credits and voluntary offset programs for travelers and cargo customers.
• ESG Ratings: LSEG ESG combined score B-, with C- for ESG controversies.
• Initiatives include solar panels at SIA facilities, partnership in the Hutan Harapan rainforest restoration, and new eco-friendly in-flight meal concepts.

Comprehensive Sector Comparison: Full-Service and Low-Cost Carriers

Air India: Impact and Outlook

SIA’s investment in Air India continues to be a drag:

• 1QFY26 losses for Air India due to one-off crash compensation and capacity cuts post-incident.
• Flight capacity: 15% cut in widebody international, 5% in narrowbody flights immediately post-crash; gradual restoration expected by Oct 2025.
• Anticipated SIA share of Air India losses: S\$250m in FY26F, S\$200m in FY27F.

ESG and Sustainability Initiatives

• Net zero emissions target by 2050, 5% of fuel from SAF by 2030.
• Participation in ICAO’s CORSIA scheme and voluntary offset programs.
• Solar panel installations, food waste reduction, eco-friendly onboard products, and rainforest restoration partnerships.
• FY20 Scope 1 emissions at 16.3m tonnes CO2, expected not to be exceeded until at least FY25F, given increased carbon efficiency and SAF usage.

Shareholder Overview

• Temasek holds 55.7% stake.
• Free float: 40.0%.

Key Risks and Catalysts

• Downside: Higher-than-expected Air India losses, consensus earnings downgrades, further correction post-dividend ex-date, rich valuation.
• Upside: Faster Air India recovery, stronger-than-expected Singapore operations, favorable currency and fuel trends.

Conclusion: Investment Outlook

Singapore Airlines faces a challenging outlook, with Air India’s losses likely to weigh on group performance for the foreseeable future. While the Singapore core business remains resilient, elevated valuations and the risk of further negative surprises suggest investors should take profits ahead of the upcoming dividend ex-date. The stock’s risk-reward profile is now skewed to the downside, with a revised target price of S\$6.80 and a “Reduce” rating.