UOB KayHian has upgraded Singapore Airlines (C6L.SG) to “buy” from “hold”, raises target price to $18.00 from $13.20, based on 1.6x FY11 book, says Dow Jones.

“We stand corrected on our cautious stance earlier on the company,” says UOB KayHian, noting industry conditions, as exemplified by International Air Transport Association’s February traffic data, show system-wide capacity remains tight, especially in Asia-Pacific region.

“For SIA, this means it will have pricing power for not just back-end traffic but also for front-end. Yields as such will rise and will most likely sustain into 3Q10.”

Expects boost to cash flow on view SIA may take advantage of improving market conditions to sell excess planes. Raises FY11-12 earnings forecasts by 26% to assume higher traffic, yields for both passenger, cargo operations.

Shares off 0.1% at $15.64.

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