Singapore Airlines (SIA SP) - Maybank Kim Eng 2018-02-14: 3QFY18 Exceeds Expectations

Singapore Airlines (SIA SP) - Maybank Kim Eng 2018-02-14: 3QFY18 Exceeds Expectations SINGAPORE AIRLINES LTD C6L.SI

Singapore Airlines (SIA SP) - 3QFY18 Exceeds Expectations


Finally, some action! 

  • SIA’s 3QFY18 core net income was above ours and consensus estimates. Cargo yields came in much stronger than expected, whilst costs were inline.
  • SIA’s 9MFY18 have firmly surpassed expectations and we think it is well positioned to manage fuel price volatility as it has hedged 41-47% of its FY18-19 fuel requirements at attractive levels. 
  • We maintain unchanged our earnings forecasts, HOLD call, and Target Price of SGD10.95 (based on long-term mean of 0.93x) pending the analyst briefing later today.



All around strong performance 

  • 3QFY18 core earnings of SGD280m (+5.8% y-o-y, +61.8% q-o-q) was above our and consensus expectations. The 9MFY18 core earnings of SGD610m (+32.4% y-o-y) make up 100% and 93% of ours and consensus FY18 forecasts. 
  • 4QFY18 management guidance is cautious (as always) but we think the outlook is better than the year before as SIA has a fuel cost advantage relative to its competitors and demand growth should exceed or match SIA’ capacity growth, which is very modest in FY18-19.


Business right-sizing hits the mark 

  • Management has been redistributing capacity between SIA, SilkAir, Scoot/Tiger and its cargo business. We think management has hit the optimum for the long-haul business as it is delivering stellar load factors with respectable yields. The same story applies for the cargo business as management has cut capacity by a quarter in the past three years.
  • However, the regional segment, namely SilkAir is underperforming and management has further tweaking to do.


Share price should react positively, in our view 

  • We believe the share price will react positively to this strong set of results and the street will need to revise earnings forecasts upwards.
  • There is also the possibility that SIA will attract dividend centric investors, as the FY19 dividend yield could be close to 4%.



Swing Factors


Upside

  • Yield is the most important earnings driver, and the trend has been negative for the past four 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.

Downside

  • The low cost business unit is saturated with rising competitive pressures.
  • FX volatility of SGD against destination countries and the USD will have an adverse effect on yields. 
  • Fuel price volatility will impact on operating cost.




Mohshin Aziz Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2018-02-14
Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 10.950 Same 10.950



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