SINGAPORE AIRLINES LTD
C6L.SI
Singapore Airlines - No Concrete Signs Of Clear Skies Yet
- 1QFY18 lifted by cargo business.
- One-off revenues amounted to S$173m.
- Competition remains intense.
Core operating profit jumped 157% to S$108m.
- Singapore Airlines’ (SIA) 1QFY18 revenue grew 5.6% YoY to S$3.86b, as increased passenger traffic (+7.6%) outstripped the decline in passenger yield (-3.1%). Parent airline recorded better performance on higher traffic despite the slight decline in yield.
- SIA Cargo posted a surprisingly positive quarter on higher freight carriage (+6.9%) and improvement in yield (+4.8%). However, SilkAir and Budget Aviation Holdings’ (BAH) (i.e. Scoot and Tigerair) operating profits came in lower YoY mainly due to significant capacity growth and weaker yields.
- 1QFY18 operating expenses rose 3.4% YoY to S$3.58b, driven mainly by increase in net fuel costs (+3.4%) on higher average jet fuel prices, and ex-fuel costs (+3.4%) partly attributable to enlarged operations of SilkAir and BAH.
- Consequently, SIA’s 1QFY18 reported PATMI fell 8.4% YoY to S$235.1m. However, excluding one-off adjustments from KrisFlyer programme (S$115m) and further recognition of compensation for changes in aircraft delivery slots (S$58m) recorded in 1QFY18 as well as one-off items recorded in 1QFY17, 1QFY18 core PATMI grew 69.7% YoY to S$62.1m.
No signs of competition easing in the near-term
- Looking ahead, we expect competition to remain intense with the Chinese carriers expanding capacity aggressively on the North-Asia and Transpacific routes and from the Gulf carriers’ persistent pressures on the Southwest Pacific routes.
- On the back of a seemingly improving global economic outlook that drives demand in passenger traffic, and coupled with support from premium economy, we are also forecasting a slowdown in decline in SIA’s passenger yields over the next two years.
Maintain HOLD
- While 1QFY18 core PATMI only formed 15.5% of our FY18 forecast, we expect SIA to turn in a better performance for the remaining quarters (due to seasonality effects).
- Factoring in the one-off items recorded in 1QFY18, we raise our FY18F PATMI by 42.7% (note that core PATMI forecast remains unchanged).
- Consequently, with no clear signs of a recovery in industry yields on the back of persistent competitive landscape, maintain HOLD on a higher Fair Value Estimate of S$10.10 (prev: S$10.03), based on 0.9x FY18F P/B.
Eugene Chua
OCBC Investment
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http://www.ocbcresearch.com/
2017-08-01
OCBC Investment
SGX Stock
Analyst Report
10.10
Up
10.030
