Aviation Sector - Keeping the faith despite higher near-term fuel prices Our in-house forecasts for crude oil price have today been raised to US$73/barrel (from US$70) for 2007 and US$80 (from US$70) for 2008, but kept at US$65 for 2009 and US$60 thereafter. We believe that a weakening US economy will reduce global crude demand and eventually bring oil prices lower. As a result, we recommend investors to keep their faith in the aviation sector, as operating fundamentals remain solid. The near-term earnings estimates for our universe have been reduced, but we are leaving longer-term forecasts unchanged. We continue to rate SIA (TP: S$28.40), AirAsia (TP: RM3.00) and MAS (TP: RM11.70) as OUTPERFORMs. THAI (TP: THB47) remains a Neutral. SIA has the greatest resilience to higher fuel prices, but THAI is the most exposed. We rate MAS a distant second to SIA, while AirAsia is in a unique position due to its fuel derivative contracts.
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