Singapore Airlines - Maybank Kim Eng 2016-04-20: 4Q16F looking positive

Singapore Airlines - Maybank Kim Eng 2016-04-20: 4Q16F looking positive SIA SINGAPORE AIRLINES LTD C6L.SI 

Singapore Airlines (SIA SP) - 4Q16F looking positive 

Lower fuel price to raise profits 

  • We think Singapore Airlines’ (SIA) upcoming results (due 12 May) could be 9% above our full-year core net profit forecast of SGD650m. 
  • SIA achieved a better-than-expected load factor and made good strides in cost management thanks to lower fuel price and also better asset productivity. 
  • Maintain HOLD with an unchanged TP of SGD11.8 (1x FY17 P/BV), pending the actual 4Q16 results and also management’s latest guidance on capacity deployment and its fuel hedge level structure. 

Tailwind push by the industry 

  • The Asia Pacific airlines have performed exceptionally well in the first quarter of 2016. 
  • Demand has outstripped supply and load factors are at record highs. 
  • SIA has successfully captured the strong demand as it recorded stellar performance on its Asian and Australasian routes in JanMar 2016. 
  • We believe that yields on short-haul sectors should firm-up, which is the case for Asian airlines that have released their results. 

Loads are pointing the right way 

  • Traffic growth has accelerated since Nov 2015 and load factor has been treading near record levels on the back of the improving supply-demand balance. 
  • The budget carriers, namely Scoot and Tigerair, are recording substantial YoY improvements and we believe yields are recovering. 

Waiting for management guidance 

  • The outlook has improved compared to our first look in the year. The average year-to-date (YTD) fuel price of USD45/bbl is lower than our base forecast of USD60/bbl and the USD/SGD exchange is firmer than initially thought. 
  • We await management’s latest guidance on its fleet deployment and also on its latest fuel hedge book before updating our forecasts. 

Swing Factors 


  • Yield is the most important earnings driver, and the trend has been negative for the past three 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. 


  • Tigerair acquisition is costly and the market is keen to see how it extracts value to the Group. 
  • FX volatility of SGD against destination countries and the USD will have an adverse effect on yields. 
  • Increased competitive pressure from the Middle Eastern carriers and also from regional peers who have upgraded its fleet and services.

Mohshin Aziz Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-04-20
Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 11.80 Same 11.80