Is Singapore Airlines (SGX:C6L) Undervalued Amid Profit Slumps and Dividend Promises?

Singapore Airlines (SGX:C6L) has long been a cornerstone of global aviation, celebrated for its service excellence and strategic foresight. Yet, as of 2025, the airline faces a complex valuation puzzle: a sharp decline in first-half profits, a high price-to-free-cash-flow (P/FCF) ratio, and ambitious dividend commitments. This analysis examines whether the stock is undervalued, considering its financial metrics, industry dynamics, and long-term growth strategies.

Valuation Metrics: A Mixed Picture

Singapore Airlines' valuation appears contradictory at first glance. Its price-to-earnings (P/E) ratio of 8.69 (TTM) is below the industry average of 9.68, suggesting relative affordability. The price-to-book (P/B) ratio of 1.27 indicates a modest premium over its book value, aligning with its asset-heavy business model. However, the P/FCF ratio of 53.4x (LTM) starkly outpaces the industry average of 7.8x, raising questions about its cash-flow efficiency. This discrepancy highlights a critical tension: while earnings appear undervalued, cash-flow generation does not justify the current multiple.

Profit Slumps and Operational Pressures

The airline's first-half 2025 net profits plummeted by 67.8% to $239 million, driven by losses from its Indian associate, Air India, and elevated operational costs. Yet, passenger demand remains robust, with 20.8 million passengers carried-a 8.0% year-over-year increase. This duality underscores the challenges of balancing short-term profitability with long-term network expansion.

Dividend Promises: Sustainability Amid Earnings Volatility

Despite the profit decline, Singapore Airlines has pledged a first interim special dividend of three cents per share in December 2025, with plans to distribute 10 cents per share annually for the next two years. The payout ratio, at 42.81% for the last fiscal year, suggests manageable dividend coverage. However, the 1H 2025 earnings per share (EPS) of S$0.23-a 22.6% drop from S$0.31 in 1H 2024-casts doubt on the sustainability of these payouts without earnings recovery.

Industry Outlook and Strategic Resilience

The broader aviation sector is projected to generate $36 billion in net profits for 2025, albeit slightly below initial forecasts, due to slower economic growth. Singapore Airlines is well-positioned to capitalize on this environment. Its strategic partnerships with Garuda Indonesia and All Nippon Airways (ANA), coupled with fleet modernization (e.g., Boeing 787-10 and A350 retrofits), aim to enhance operational efficiency and global reach. Scoot, its low-cost subsidiary, has demonstrated resilience, with a 14.2% passenger increase and a 91.9% load factor in August 2025.

Financial Health: Conservative Leverage, Room for Growth

Singapore Airlines' debt-to-equity ratio of 0.82 and interest coverage ratio of 4.08 signal a conservative capital structure and strong debt servicing capacity. With a debt-to-capital ratio of 45.20%, the airline maintains flexibility to fund growth initiatives without over-leveraging. This financial discipline is critical in an industry prone to cyclical volatility.

Conclusion: A Calculated Bet on Resilience

Singapore Airlines' valuation is neither clearly undervalued nor overvalued. The low P/E ratio and strong industry positioning suggest potential for earnings recovery, while the high P/FCF ratio reflects skepticism about cash-flow sustainability. Investors must weigh the airline's aggressive expansion plans against near-term profit pressures. For those with a long-term horizon, the company's strategic investments in technology, partnerships, and fleet modernization-coupled with its conservative debt profile-justify cautious optimism. However, the dividend promises, though ambitious, hinge on a return to consistent profitability, which remains uncertain in the current environment.