Singapore Airlines (SIA SP) - Maybank Kim Eng 2017-02-08: 3QFY17 disappoints

Singapore Airlines (SIA SP) - Maybank Kim Eng 2017-02-08: 3QFY17 disappoints SINGAPORE AIRLINES LTD C6L.SI

Singapore Airlines (SIA SP) - 3QFY17 disappoints

Cargo profit surge masks underlying weakness 

  • SIA’s 3QFY17 was below ours and consensus expectations. Yields were distinctively weak owing to intense competition and overcapacity. Costs were in order thanks to lower fuel hedging losses and productivity gains.
  • The cargo unit surprised on the upside with the best performance in nine years. 
  • We keep our earnings forecast, HOLD call and TP of SGD of 9.70 (pegged to its long-term mean of 0.86x) unchanged pending the analyst briefing later today.

Hit by weak yields 

  • 3QFY17 core earnings was SGD265m (+11.3% YoY, +200% QoQ) was below ours and consensus expectation. The 9MFY17 core earnings of SGD457m (+6.3% YoY) make up 69% and 66% of ours and consensus full year FY17 forecast. 
  • 4QFY17 guidance is unenthusiastic and SIA is unlikely to meet with our forecast. 
  • Key pressure is rising competition on the long-haul market and customers increasingly becoming budget conscious.

Management taking further risk mitigation steps 

  • Management has hedged 33-39% of fuel needs up to 2022 at average prices ranging from USD53-59/bbl. This is a departure from its 18-months forward hedging strategy. Nonetheless, we applaud the management for taking this bold measure as it improves its cost visibility going forward.
  • There are other more attractive airlines SIA’s misfortunes are due to market overcrowding on its key markets. This is structural in nature and despite management’s best efforts; they don’t seem to have an answer for it. It is very likely that the current mid single-digit net profit margins and ROEs is what SIA could hope for in the future. That said, it’s best to avoid SIA for other airlines with superior financial returns.

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 their fleets and services.

Mohshin Aziz Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2017-02-08
Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 9.700 Same 9.700