Singapore Airlines (SIA) - DBS Research 2019-02-15: 3Q19 Results In Line; Maintain BUY


Singapore Airlines (SIA) - 3Q19 Results In Line; Maintain BUY

  • SIA’s 3Q19 net profit of S$284m (-27% y-o-y, +400% q-o-q) in line with expectations.
  • Flagship passenger segment posted a marginal improvement in EBIT despite higher fuel costs on higher passenger load factor and tight non-fuel cost control.
  • Earnings to continue to recover on lower fuel costs and as the ongoing transformation programme pays off.
  • Maintain BUY, Target Price S$11.00.

What’s New

SIA reported 3Q19 net profit of S$284m, which declined 27% y-o-y but showed a fourfold improvement from 2Q19

  • SINGAPORE AIRLINES LTD (SGX:C6L, SIA) reported 3Q19 net profit of S$284m, which declined 27% y-o-y but showed a fourfold improvement from 2Q19, and was in line with our expectations.
  • Revenue grew 6.5% y-o-y to S$4.34bn mainly on growth in passenger demand with passenger yields being flat. Operating costs outpaced revenue growth at 9.1% y-o-y mainly due to a 22.2% increase in fuel costs as a result of higher average jet fuel price during the quarter. Hence, operating profit fell 14.6% y-o-y to S$387.6m.
  • On a segmental basis, the flagship SIA passenger business posted a marginal growth in EBIT contribution to S$369m, offset by substantially lower contributions from Silkair (S$7m in 3Q19 vs S$19m in 3Q18) and Scoot (S$1m in 3Q19 and S$43m in 3Q18). SIA ENGINEERING CO LTD (SGX:S59)’s EBIT contribution fell by 16% y-o-y to S$16m.
  • While SIA’s 3Q earnings were lower compared to last year’s figures, it improved significantly from the previous two quarters, thanks to higher load factors and stringent non-fuel cost control. SIA’s flagship passenger segment performed well by posting an improvement in passenger load factor of 1.8ppts to 83.4% while keeping passenger yield stable, enabling a decent growth in revenues for the segment. This helped to partially offset the weaker performances of Scoot and Silkair, both of which saw weaker yields during the quarter.
  • Looking ahead, we expect SIA’s 4Q19 earnings to post a y-o-y improvement on lower fuel costs as spot jet fuel prices averaged US$80/bbl while the quarter-to-date average price of spot jet fuel is US$73/bbl and the current price is US$78/bbl.
  • Coupled with strong momentum from SIA’s transformation programme to spur revenue growth, i.e. focusing on Revenue per Available Seat KM (ASK) through optimising the balance between yield and load factors, this should lead to better earnings for the carrier.

We reiterate our BUY call on SIA

  • We reiterate our BUY call on SIA, as we believe that lower fuel costs will lead to better earnings over the next two years. At the same time, the ongoing transformation programme could also lead to a sustained improvement in its operations and profits.
  • Our Target Price is maintained at S$11, which is based on 0.9x FY20F P/BV against a projected ROE of 6.5% for FY20.

Paul YONG CFA DBS Group Research | https://www.dbsvickers.com/ 2019-02-15
SGX Stock Analyst Report BUY MAINTAIN BUY 11.000 SAME 11.000