Dear readers, there has been so much interest in SIA stock these days that I feel compelled to weigh in my views too. As a quick summary, SIA’s business has been hit by Covid-19 so much so that the group posted its first annual net loss in 48 years as reported yesterday. To improve its financial situation, SIA has recently issued rights shares at $3 per piece and mandatory convertible bonds (MCB). Currently, the rights to the right shares and MCB shares are currently trading on the Singapore stocks exchange. SIA stock closed at $3.81 yesterday.
The main question that investors have is on whether they should invest in SIA stocks now at the current low and or apply for the rights shares of SIA and whether they should apply for excess rights of SIA. I believe investors who generally hold the above thoughts belong to two camps:
(a) existing SIA shareholders who wish to buy more SIA shares so that they could average down the cost of their SIA positions
(b) new shareholders who wish to invest in SIA stock at the current so-called unprecedented low prices
Be it camp (a) or camp (b), I think investors into SIA stock and rights now have the thinking that once the rights shares commence trading, SIA stock should still trade above the base price of the right shares at $3 per piece.
However, I would think that the underpinning reason of their investing into SIA stock has really to do with their perception that compared to the past SIA stock price, SIA stock should not be trading at the current $3 to $4 level and that SIA stock price deserve to fare better.
I cannot forecast the future and neither do I know where SIA price would go in the future. However, I would just want to caution investors that past performances is not a reliable indicator for the future. Even without Covid-19, the geo-political and economical landscape have battered Straits Times Index stocks over the years. As an example, look at the trading price range of Golden Agriculture, Hutchinson Port Holdings, SPH ten years ago and compare these with the current prices. And do not forget former seemingly great stocks like NOL and Tiger Airways which fell to a low in share prices before being delisted.
And not forgetting, many have warned that the impact of Covid-19 has not been fully felt yet. There is no certainty that airlines will return to the pre- Covid-19 level.
I am certainly no fan of SIA stock. I have not invested in SIA stock and glad in not investing in it and will not invest in SIA in the future.
The reason for my dislike of SIA stock was along what Warren Buffet has famously said. In good economy times, oil prices will be high and not favourable to the bottomline of airline stocks. In bad economy times, air travel demand will reduce.
It is also noteworthy that Warren Buffet picked up aviation stocks in recent months contrary to his sayings. But as we learnt from the latest Berkshire Hathaway AGM, Warren has since sold all his airlines stocks after saying it was his mistake to buy them in the first place.