SIA
SINGAPORE AIRLINES LTD
C6L.SI
Singapore Airlines SIA - 4QFY16 Below Expectations On Higher Cargo Losses And A Steep Rise In Maintenance Costs
- SIA’s 4QFY16 core net profit was 57% and 52% below our and consensus estimates respectively, mainly due to higher cargo losses and a steep S$95m rise in MRO costs.
- Pax yield was also 2.5% lower than our estimate. Excluding EI, 4QFY16 core net profit would have risen 205% yoy to S$121m.
- We intend to seek clarification at the analyst briefing on the decline in pax yields, the reasons behind losses from associates and the steep increase in maintenance cost.
- Maintain BUY and target price of S$13.90 pending the analyst briefing.
• Earning below expectations on higher cargo losses and a steep increase in maintenance costs.
- The latter rose by S$95m at the parent airline, while a lower-than- expected pax yield led to a S$57m variance in revenue.
- Parent airline’s pax yield at 10.6 S cents was 2.2% lower than our estimate.
- Singapore Airlines’ (SIA) cargo losses were also more than double our estimate. Losses at the associate level came as a surprise and suggest that both 23%-owned Virgin Australia and 49%-owned Vistara could have been in the red.
- Exceptional items amounted to S$104m, mainly due to an S$117m refund of anti-trust cargo fines.
- SIA declared a final dividend of 35 S cents (+106%).
• Pax yields fell 7% yoy in 4QFY16, accelerating from 3QFY16’s 4.3% decline.
- The steep decline comes as a surprise and could be due to a stronger Singapore dollar or weaker premium loads.
• Hedged 25% of FY17 jet fuel requirements at US$83/bbl and a further 6% on Brent at US$64/bbl.
- For 1QFY17, SIA has hedged 42% at US$87/bbl.
• Strong showing from Scoot with operating profit doubling qoq.
- Scoot’s revenue rose 49% yoy on higher loads and stable yields yoy, leading to a reversal from a loss in 3QFY16 to a S$32m operating profit in 4QFY16.
- Meanwhile, SilkAir benefitted from lower costs but yields fell 8% yoy.
• Cash and equivalents fell 21% yoy
- Cash and equivalents fell 21% yoy to S$3.9b on the back of a 12% rise in capex and $300m in debt repayment.
- SIA expects the A350-900 to boost efficiency and also guided that advance bookings are “tracking positively against seat capacity”. Underscoring this, advance bookings rose by 11% to S$1.6b.
STOCK IMPACT
- We plan to seek clarification on the following at an analysts briefing:
- Reasons behind the decline in pax yields and the potential for yield/load improvement following codeshares with Lufthansa and possibly Air France KLM.
- Reasons behind the losses from associates and if SIA plans to inject further capital into Virgin Australia or Vistara
- Reasons behind the steep 30% increase in maintenance costs and whether it will normalise.
- If SIA intends to ground more freighters, given the extent of cargo losses.
EARNINGS REVISION/RISK
- We have not revised our earnings assumption and will do so post the analyst briefing.
VALUATION/RECOMMENDATION
- No change to our target price and recommendation pending the analyst briefing.
SHARE PRICE CATALYST
- Higher aircraft sales and stable yields.
K Ajith
UOB Kay Hian
|
Sophie Leong
UOB Kay Hian
|
http://research.uobkayhian.com/
2016-05-13
UOB Kay Hian
SGX Stock
Analyst Report
13.90
Same
13.90
