Friday, June 9, 2017

WILL THIS BILLION-CAP STI STOCK BE PRIVATISED?

SIA stock
Even as the stocks markets have already digested the fact that SIA incurred a surprising fourth-quarter net loss of S$138 million, its first in five years, SIA Chief said in a report dated 7 Jun 2017 that jobs at SIA are likely to be cut as part of the airline’s business review. When I heard this news, I was a bit surprised and also not surprised. Surprised in the sense that has SIA’s business gone so bad that the prospect of job cuts has to be factored in? Unsurprised as all along the airline business is really a very competitive one. Even investing legend Warren Buffet has his saying that he is not really into airline stocks. The fact being traditionally when the economy is good, cost of aviation oil is high and when the economy is not good, the demand for overseas travel and hence air flight demand is not strong too.
Many businesses are currently undergoing a business review or strategic review. Take for example another Temasek-linked company, Sembcorp Industries: many guessed that a likely outcome for the strategic review of Sembcorp Industries is divestment of its loss-making subsidiary in Sembcorp Marine. Similarly, I do not rule out that SIA (Temasek has a 55.64% in the company) will be privatized after the review or eventually:

1) The precedent has been there: Tiger Airways had been privatized and merged with Scoot with SIA overseeing.

2) The narrative has been there: we have noted our local leading listed entities in the maritime and land transport being NOL and SMRT (both also Temasek-linked companies) privatized as a result of the competitive landscape, the time might come for SIA to do so in a similar business environment

3) It makes only business sense: a privatized company will have more focus on business and operations, rather than the rigour of being listed on the bourse; also listing on the bourse has its associated cost and hence privatization could mean some cost savings

While the above is just my humble thinking, the fact is that in this competitive landscape, between staying profitable and staying in business, the choice is clear: the latter is more important. Join the emailing list to receive regular Financial and Singapore stocks newsletters too! Like" me on Singapore Stocks Investing Facebook page to receive all posts on your Facebook as well as read more articles. Follow me on Twitter too.

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