SINGAPORE AIRLINES LTD
C6L.SI
Singapore Airlines (SIA SP) - 3QFY18 Exceeds Expectations
Finally, some action!
- SIA’s 3QFY18 core net income was above ours and consensus estimates. Cargo yields came in much stronger than expected, whilst costs were inline.
- SIA’s 9MFY18 have firmly surpassed expectations and we think it is well positioned to manage fuel price volatility as it has hedged 41-47% of its FY18-19 fuel requirements at attractive levels.
- We maintain unchanged our earnings forecasts, HOLD call, and Target Price of SGD10.95 (based on long-term mean of 0.93x) pending the analyst briefing later today.
All around strong performance
- 3QFY18 core earnings of SGD280m (+5.8% y-o-y, +61.8% q-o-q) was above our and consensus expectations. The 9MFY18 core earnings of SGD610m (+32.4% y-o-y) make up 100% and 93% of ours and consensus FY18 forecasts.
- 4QFY18 management guidance is cautious (as always) but we think the outlook is better than the year before as SIA has a fuel cost advantage relative to its competitors and demand growth should exceed or match SIA’ capacity growth, which is very modest in FY18-19.
Business right-sizing hits the mark
- Management has been redistributing capacity between SIA, SilkAir, Scoot/Tiger and its cargo business. We think management has hit the optimum for the long-haul business as it is delivering stellar load factors with respectable yields. The same story applies for the cargo business as management has cut capacity by a quarter in the past three years.
- However, the regional segment, namely SilkAir is underperforming and management has further tweaking to do.
Share price should react positively, in our view
- We believe the share price will react positively to this strong set of results and the street will need to revise earnings forecasts upwards.
- There is also the possibility that SIA will attract dividend centric investors, as the FY19 dividend yield could be close to 4%.
Swing Factors
Upside
- Yield is the most important earnings driver, and the trend has been negative for the past four years.
- Low fuel price is providing significant cost reduction and bottom-line boost.
- Strong demand and supply scarcity in the region should drive up loads and yields in the medium term.
Downside
- The low cost business unit is saturated with rising competitive pressures.
- FX volatility of SGD against destination countries and the USD will have an adverse effect on yields.
- Fuel price volatility will impact on operating cost.
Mohshin Aziz
Maybank Kim Eng
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http://www.maybank-ke.com.sg/
2018-02-14
Maybank Kim Eng
SGX Stock
Analyst Report
10.950
Same
10.950
