So I was thinking about it.
As usual, these are my musings, by using some simple logic.
I like to use rough estimates. Cos in my opinion, it's easier to think about things that way.
Please don't take it as an indication to buy or sell your investments. Please do your own research.
I put the estimated share price in June for the respective years cos that's probably 3 months after the year end and that's when the financial reports are released.
So how do I look at these numbers?
This is what I think...
(All numbers are in millions)
IF I buy the WHOLE SIA in June 2019, it will cost around $10.7 billion. (Shares outstanding x Price)
This will generate $682 million earnings for me.
This also means that the market believes that for me to earn $682m, I should invest $10.7b.
Based on the current market conditions at that point in time.
IF I buy the WHOLE SIA in June 2018, it will cost me $13 billion.
This will generate $893 earnings million for me.
This also means that the market believes that for me to earn $893m, I should invest $13b.
Based on the current market conditions at that point in time.
There is an expected cause and effect in the numbers.
For X earnings, the expected fair value is Y.
For Y market value, the expected earnings should be X.
Ok...
Moving on...
In 2019, and 2018, it's probably some of the better years of flying.
No real issues in the world, people are going about with their normal lives.
From this point, how much MORE can SIA increase earnings?
In my opinion, this is hard. SIA flies out of Singapore.
They can increase routes, or frequencies.
They can also charge more.
But it's not like SIA can start flying within the US domestic space.
So yes, there MAY be potential ways SIA can increase their earnings. BUT it's not going to be easy.
I would think that SIA has already conquered as much market share as it can for it's capability.
There is space for expansion but not significantly.
Look at the current situation of SIA now...
It has grounded most of it's planes.
It will take some time maybe 3-5 years before SIA can regain it's earnings of 2018 or 2019.
I highly doubt that in the next 6 months, suddenly they can regain similar strength in earnings.
Ok now let's look at the rights issue.
If I buy the WHOLE of SIA now...
Current market price is $6+
Shares outstanding is same at 1.183m
So IF I buy the WHOLE SIA now, I'll need to pay... $7.1 billion
This is for already significantly reduced earnings.
In a few days/weeks, the rights issue will come out...
For every 2 shares of SIA, I get 3 rights to buy at $3 per share.
So as the full owner of SIA, I have to continue to invest...
So I need to inject another... $5.323 billion (1.183 shares / 2 x 3 x $3)
So... I've paid a total of... $12.423 billion for the WHOLE of SIA.
BUT... IF I've paid $12.423 billion for SIA, I should be getting earning the likes of 2018 or 2019.
The rights issue is for SIA to SURVIVE, and MAYBE expand in future.
I have doubts about how much more SIA can expand.
So I'm just looking at old earnings. IF they can attain back their old earnings of 2019/2018 that's already very good in the middle term.
BUT if I pay 12 billion for SIA NOW, in this current market condition, I should be expecting earnings of 2019/2018.
Obviously this is not the case.
So in my opinion, shareholders now, who are holding the shares at $6 per share are not getting a good return for their investment, regardless whether they sell their rights or exercise their rights.
The current price and market value after dilution is as though SIA has earnings expectations of the good old days 1-2 years ago.
But this is not the case based on the current economic conditions.
It will take years before SIA can regain back the earnings they had in 2019/2018.
Only then can they talk about further expansion and getting more earnings.
So in my opinion, the current price of SIA at around $6 with the expected rights entitlement,
OR
the diluted theoretical price of $4.20 after the rights issue.
Is too high for the current market conditions.
Even though I'm just using rough estimates, I feel these prices should only be seen when the earnings of SIA go back to the good old days of 2019/2018.
*Note, I may be using total market value for my calculations, but it will scale down proportionately to individual shares. So the conclusion is still the same.
Once again...
These thoughts are my own analysis and thinking about SIA, please do not use it as an indication to buy or sell. Please do your own research before making any decisions.
<<PREVIOUS POST // NEXT POST>>
Did you like this post? If so, could you "blanjah" me 1/4 cup of my morning coffee pls.
You may also consider subscribing to receive the articles in your email, link in the column on the right.