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
Upside
- 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.
Downside
- 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
11.80
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11.80
