SINGAPORE AIRLINES LTD
C6L.SI
Singapore Airlines (SIA SP) - Load Factors Continue To Improve Across All Sectors In Dec 17
- Singapore Airlines (SIA)’s pax and cargo load factors improved significantly in December as load factors for the parent airline and SIA cargo were the highest in 10 years.
- Pax traffic growth continued to outpace seat capacity growth across all sectors, and yields should improve as a result. Improved pax yields and higher load factors should lead to a better profit in 3QFY18.
- Maintain BUY. Target price: S$11.90.
WHAT’S NEW
Parent airline’s pax load factor rose 1.9ppt yoy in Dec 17 as pax traffic increased 3.1% yoy with little change in seat capacity.
- Singapore Airlines’ (SIA) load factor was the highest in more than 10 years as growth was driven by an increase in passenger demand across all regions.
- In 3QFY18, the parent airline’s load factor grew 2.6ppt yoy while pax traffic grew 4.2ppt yoy.
SilkAir: Double-digit yoy growth across all metrics in Dec 17.
- Passenger carriage grew 12.2% yoy as traffic growth outpaced capacity growth, led by an increase in demand to/from China and Southeast Asia. Dec 17 (and Jun 17) load factor was also the highest in five years.
- SilkAir’s pax traffic grew 4.4% yoy in 3QFY18 as pax load factor increased 3.5ppt yoy due to stronger demand during the quarter.
Pax traffic increased 10.2% yoy while seat capacity increased 9% yoy for Budget Aviation Holdings (BAH), which consists of Scoot and Tiger Air.
- Budget Aviation Holdings (BAH)’s load factor increased 1ppt yoy and was at its highest since 2014 as passenger demand continued to grow during the year-end peak.
- In 3QFY18, BAH’s load factor grew by 5ppt, the most significant improvement in load factor across all sectors.
SIA’s cargo load factor at 88.7% was at its highest in more than 10 years.
- Cargo traffic grew 4.3% yoy as demand outpaced capacity changes. The strongest load factor improvement was in Europe and in the West Asia and Africa region, which helped to offset a 5ppt decline in loads to the Americas.
- In 3Q18, cargo load factor increased 2.4ppt yoy as cargo traffic grew 4.4ppt yoy.
STOCK IMPACT
December marks SIA parent airline’s ninth consecutive month of load factor improvement.
- We believe the strong growth in load factors coupled with increasing yields will result in better 3QFY18 earnings.
Rising fuel prices a cause for concern if yields do not increase in tandem.
- Brent crude oil futures have risen by more than 50% since mid-17 with prices at the highest since Dec 14.
- For FY19, we have assumed that fuel prices will average US$75/bbl. If ticket prices are not raised to commensurate the rising fuel prices, an increase in US$5/bbl is expected to reduce our FY19 PBT forecast by 17%. However, an increase in pax yield by 2.7% will aid in negating any losses to PBT.
EARNINGS REVISION/RISK
- No change to our earnings estimates.
VALUATION/RECOMMENDATION
- Maintain BUY and target price of 11.90.
SHARE PRICE CATALYST
- Strong 3QFY18 earnings.
K Ajith
UOB Kay Hian
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http://research.uobkayhian.com/
2018-01-16
UOB Kay Hian
SGX Stock
Analyst Report
11.900
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11.900
