Sunday, March 11, 2012

Journey To Retirement Part 6 -- SIA

The sixth part of my investment portfolio in which objective is to create wealth to retire.

Stock : Singapore Airlines
Singapore Airlines, SIA is the national carrier of Singapore and it was listed in SGX in 1985.  SIA has throughout the years established itself as one of the most reputable premium airlines in the world.  Vested in SIA in 2009 at a price of $11.12 and with further addition a year later that made an average holding price of $12.07 as of now excluding all the dividend received since then.  SIA as of now is the world number 2 airline by market capitalization and with a very healthy cashflow, holding free cash which equivalent to at least $3/share.  Under SIA, it has SIA Engg and SilkAir as its subsidaries to cater for aircraft maintenance business ( SIA Engg ) and mid-range traveling revenue.  In the past it also own SATS, the flight kitchen catering unit but in 2010, divested out as it aimed to restructure its business model to solely focus on air travel business.  Now SIA is launching its budget airline, Scoot this year to complete for the budget air travel business despite being having investment stake in TigerAir, another budget airline.  SIA is considered a "growth-cum-income stock" in my portfolio due to the fact SIA being a blue chip and a "too big to fail" company in Singapore.  Should SIA bankrupt, Singapore reputation also gone and that is the strong reason for me to invest in SIA.  The on average $1/share dividend per annual norm is contribution to the "income" component of the classification while the cyclical business is the "growth" component. Presently am waiting for opportunity to aquire more SIA share and to no surprise am waiting for recession to bargain hunt.

Potential Upside :
World economy is back to its good old days whereby premium air travel demand is at its peak and that is the potential that SIA could bring to its earning and share price.  With budget airline squeezing out some of the revenue from premium airlines like SIA and with SIA also launching its own budget airline Scoot, the potential is there for SIA to regain whatever business it has lost to other budget airlines through Scoot.  Should Scoot being very successful, this would spring some surprise upside to SIA business.  At the moment since Scoot is yet to operate and still an unknown, hence it is justify to classify that being a potential.  With SIA decides to phase out its older aircraft of the Boeing 747 series and concentrate on Airbus and Boeing Dreamliner series of aircraft, this has put SIA as one of the leading airlines in the world to be equipped with "the latest technology" in air traveling.  With the latest series of aircraft fleet, this has allowed SIA to provide better flight entertainment services and more comfortable journey for air travelers.  This translates to business sense means could retain existing air travelers and attract some from rival airlines.

Potential Downside :
Like any airlines in this world, the rising of crude oil price has eroded airlines profit margin despite after hedging for it.  This is one fatal downside for any airlines in this world including SIA should crude oil price continue to rise to beyond US$150/barrel.  Global economy condition is also factor that could affect the downside of SIA.  Since the 2008 financial crisis, global economy has yet to fully recover and should the global economy going to enter another crisis now, this will threaten global air travel which SIA will not be spared.  The last potential downside for SIA at the moment is competition with budget airlines.  With the emerging of budget airlines some 3 years ago, that has taken some revenue from the premium airlines and that is one reason why SIA is launching its own budget airline, Scoot in hoping to regain some of the lost revenue.  While Scoot could be a potential game changer for SIA to the upside, the failure to get market shares is also a potential downside for SIA.

Personal Expectation :
The minimum expectation for SIA is ability to maintain the constant dividend payout of average $1/share per annual without any doubt.  The next expectation is of course the new budget airline Scoot ability to regain some of the market shares SIA lost to budget airlines and that should provide the capital appreciation for my investment.  Lastly, is the management team ability to control the damage due to rising crude oil price so that it will not end up with a year of financial loss to the company.  Till now, SIA holds the proud record of yet to record a full year loss in a financial year.

Singapore Airlines

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