Temasek sells stake in Singapore Airlines. Time to turn more cautious?

What happened?

Temasek is selling around S$400 million worth of shares in Singapore Airlines (SIA), according to a Business Times report on 28 June 2023.

The shares are priced between S$7.202 and S$7.283 per share, based on a term sheet that was seen by Reuters. 

This would represent a 2.89% to 3.97% discount to SIA’s last closing price of S$7.50 on 28 June 2023.

Let’s dive deeper to understand what this could mean for SIA’s share price. 

What you need to know about Temasek’s sale of stake in Singapore Airlines (SIA)

#1 – Temasek remains significant shareholder in SIA

Through Napier Investments Pte Ltd and Temasek Holdings (Private) Limited, Temasek has a 55% direct stake in SIA as of 5 June 2023.

Following the reported share sale, Temasek would still maintain a majority stake in SIA with a stake of about 53.5%.

In the article, Temasek also reiterated its commitment to the long-term success of SIA as a majority shareholder. 

#2 – Temasek had previously adjusted stakes in portfolio companies

This is not the first time that Temasek has trimmed its stake in portfolios companies. 

In October 2016, Temasek sold a 2% stake in SATS to bring its holding to below 41%.

At the same time, Temasek has also been deploying capital into selected portfolio companies.

For example, Temasek participated in Sembcorp Marine’s 2021 and 2022 rights issues, and has a 39% stake in Seatrium following the merger between Sembcorp Marine and Keppel Offshore and Marine.

It also participated in the SATS rights issue in March this year, keeping its stake in the company at 40%.

Overall, Singapore is still the market where Temasek has the largest exposure to as of March 2022. Based on Temasek Review 2022, Singapore investments contributed about 27% of Temasek’s portfolio, with DBS and Singtel representing some of its largest investments. 

#3 – SIA reported strong operational performance in the past year

In May this year, SIA reported the highest level of profit in the company’s 76-year history.

With the recovery in travel demand, SIA and Scoot carried 26.5 million passengers in the 12 months ending 31 March 2023. 

The strong momentum continued into May 2023, when SIA and Scoot served 2.8 million passenger, a 66% increase compared to the previous year. 

Looking ahead, SIA continues to see “robust” demand for air travel.

What would Beansprout do?

The share price of SIA has risen by 37% year-to-date, outperforming the Straits Times Index (STI). 

In fact, it reached a 52-week high of S$8.05 on 15 June, before profit-taking led to a fall in its share price to S$7.50 as of 28 June 2023. 

Analysts have also turned more cautious on SIA given its strong share price performance year-to-date, with broker downgrades reported on 22 June and 27 June. 

One reason cited for turning more cautious on SIA include a tapering in the number of passengers carried potentially leading to a decline in the company’s earnings.

Also, there could potential cash outflow from redeeming its mandatory convertible bonds and investment into the merged Vistara/Air India group.

The consensus target price of SIA is S$6.42 as of 29 June 2023, 14% below its closing price of S$7.50.

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