Singapore Airlines is cutting 96% of the capacity due to the tightened border controls to stem Covid-19. SIA (SGX: C6L) shares are currently at a low of S$5.40. Is now a good time to buy SIA shares?

Hi Anon,

Just like how you should do your research before making any big financial decisions, you shouldn’t buy SIA shares now just because its share price is low. It might be a risky move to buy this blue-chip now.

Some factors to consider:

• SIA has said that cutting 96% of its capacity is the greatest challenge that the group has faced in its existence. SIA could potentially lose over $140 million April, and could be in a precarious position by end June without financial help from the Government, according to UOB Kay Hian’s K. Ajith

• OCBC Credit Research has again lowered its credit rating for Singapore Airlines

• DBS Group Research has also downgraded the counter

• An operating loss for SIA is expected for the fourth quarter ended March 31, 2020 given the fall in revenue for February and March

• The airline industry is also a price-sensitive industry, which doesn’t work well for the long-term for investors

Some OCBC credit analysts also foresee that SIA will need to seek external financial funding, either from its banking relationships or possibly from its major shareholders.

Take a look at my colleague, Sudhan's article about this topic if you'd like to find out more and dive deeper into it. (It's the link that Brandon shared below)

Hi Anon!

Interestingly enough, our Investments Lead at Seedly, Sudhan, has just written an article with regards to this topic! You can check it out here, but do remember to take the advice given with a pinch of salt, and to research the stock and it's market thoroughly for yourself before making any decision.

TL;DR: SIA is a no-go at the moment for these reasons

• There’s going to be significant capacity cuts amid the fall in demand, no thanks to the Covid-19 pandemic.

• SIA is operating in a price-sensitive industry, and that doesn’t bode well for the long-term as an investor.

• Capital is used to keep SIA’s fleet new, and that has caused negative free cash flow for four of the last five years.

• There could be more pain ahead with SIA’s balance sheet looking shaky.

• If SIA’s dividend is cut to conserve cash, its 5% dividend yield doesn’t look attractive anymore.

This all points to shares dropping even further, and it can be argued that we have not yet seen the full brunt of Covid-19 on the markets.

Again, do remember that this is just an opinion, do take the time to research and study the stock for yourself!

Feel free to discuss this in the comments below, and do leave an answer to let us know your own thoughts on this!​​​