Maybank Kim Eng Research 2015-07-16: Singapore Airlines - 1QFY16F: Just coasting around. Maintain HOLD.

1QFY16F: Just coasting around 

  • 1QFY16 results on 29 July. Expect core net profit of SGD92m (+270% YoY, 76% QoQ), well below SGD100-200m during a ‘normal’ year. 
  • Demand is stagnant but low fuel price could be the next catalyst for growth. Further industry consolidation in 2H and pick-up in the cargo market should improve outlook. 
  • On balance, maintain HOLD as current share price presents little upside to our target price of SGD12.40. 

What’s New 

  • Singapore Airlines’ (SIA) 1QFY16 operating statistics were generally in line with our expectations with the exception of load factor, which was a touch bit lower. 
  • System traffic contracted by 0.9% YoY and load factor decreased by 1.4ppt to 80.0%. 

What’s Our View 

  • The takeaway from the 1QFY16 operating statistics is SIA is feeling the effects of regional competition. 
  • Both Malaysia and Indonesia have seen a weaker YoY Mar-Jun quarter and Singapore is sucked in into this storm. 
  • Although our 1QFY16 numbers look great when compared YoY, they are far lower than the normal profit range of SGD100-200m that SIA achieves during normal years. 
  • The outlook for the subsequent quarter should be moderately better as the industry will begin to consolidate capacity in 2H15 and the cargo market is picking up. 
  • Furthermore, fuel price is trending down and Changi airport has provided incentives that will help to reduce cost. 
  • Our earnings forecasts and target price of SGD12.40 are unchanged pending results and the analysts briefing. 
  • Maintain HOLD as there is limited upside to our target price.

(Mohshin Aziz)

Source: http://www.maybank-ke.com.sg