Singapore Airlines’ (SIA) general offer for Tigerair will close today and Tigerair is set to become a wholly owned subsidiary of SIA since the compulsory acquisition threshold was achieved during the offer period. Shareholders who did not respond to the offer will receive a letter from SIA on the compulsory acquisition of their shares in due course.

Separately, SIA has also taken delivery of its first Airbus A350-900, which arrived in Singapore yesterday morning and is the first of the 67 A350 aircraft on firm order. Even though the new A350s will allow SIA to serve more long-haul destinations with improved fuel efficiency, we believe the yields on SIA’s key routes to Europe are still under pressure due to intensifying competition from the Gulf carriers (e.g. Emirates and Qatar Airways).

While we remain cautiously optimistic on the potential significant savings from cheap jet fuel, we think SIA’s hedging policy may continue to reduce such savings on significant hedging losses. Therefore, we prefer to get clarity over its FY17 hedging positions before reviewing our assumptions again. Maintain HOLD with an unchanged FV of S$11.70.

Source: OCBC Research - 4 Mar 2016