SIA
SINGAPORE AIRLINES LTD
C6L.SI
Singapore Airlines (SIA SP) - 1Q17 was uninspiring
Lower fuel price saves the day..
- SIA’s 1QFY17 was below ours and consensus expectations.
- Key operating parameters were weak, namely yields and load factor. Many cost items spiked bringing the unit cost ex-fuel up by 4.5% YoY. The saving grace for the quarter was the 33% lower unit jet fuel prices on lower market prices and lower fuel hedging losses.
- We keep our earnings forecast, HOLD call and TP of SGD of 10.0 (pegged to its long-term P/BV mean of 0.87x) unchanged pending an analyst briefing next week.
..but 1Q17 still came in below expectations
- 1QFY17 core net profit of SGD104.2m (versus a loss of SGD16.9m YoY) is 13% of ours and 12% of consensus full year forecasts.
- 1Q is a seasonally weak period ahead of the strong 2Q-3Q.
- There were one off disposal gain of SGD142m relating to the sale of the Group’s 10% stake in Hong Kong Aero Engine Services Ltd.
Pressure on long-haul and cargo
- The parent airline and cargo underperformed in the period with lower YoY loads and yields. Competition is intense on the long-haul and cargo segment and is unlikely to abate anytime soon, in our view.
- Furthermore, the recent widely publicised engine fire on flight SQ368 may prompt further pressure on yields for the short-term. The engineering unit also underperformed due to internal restructuring costs.
- The bright sparks were Silkair, Scoot and Tigerair which delivered respectable YoY profit growth, affirming that the short-haul market segment is buoyant.
Give it a miss, other airlines are performing better
- Our key takeaway from the results was the better YoY performance was solely due to lower fuel prices.
- SIA’s strategy is to hedge 33-66% of fuel needs 18-months forward, and therefore it is only now enjoying the great benefits of low fuel prices.
- Apart from fuel, SIA has underperformed in every variable within its control.
- We will be back with updates post the analyst results briefing on 1 Aug.
Mohshin Aziz
Maybank Kim Eng
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http://www.maybank-ke.com.sg/
2016-07-29
Maybank Kim Eng
SGX Stock
Analyst Report
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