Singapore Airlines (SIA) - OCBC Investment 2019-02-15: More People Are Flying


Singapore Airlines (SIA) - More People Are Flying

  • Higher passenger load factor. 
  • Better RASK. 
  • Cargo slowing. 

Decent 3QFY19 results

  • SINGAPORE AIRLINES LTD (SGX:C6L, SIA) reported a 6.5% y-o-y rise in revenue to S$4.34b but saw a 27.1% fall in net profit to S$284.1m in 3QFY19, bringing 9MFY19 net profit to S$480.1m, which was better than our expectations.
  • A robust improvement in revenue (+S$265m) in 3Q largely offset higher fuel and non-fuel expenditure. The former was driven by growth in passenger demand (+S$245m or 7.7%), while cargo flown revenue was steady against last year (+S$3m or 0.5%), as stronger yields offset lower loads carried.

Better performance in passenger, but cargo slowing

  • Passenger traffic for the group rose 8.0% in 3Q, outpacing capacity growth, resulting in a 0.9ppt improvement in passenger load factor to 83.0%. Group RASK (revenue per available seat-km) increased 1.3% as transformation programme momentum continued.
  • For cargo, however, things are starting to slow especially in Dec with a lower yield, mainly due to US-China trade tensions and reduction in demand from Europe.

80% of 4Q fuel needs are hedged

  • Fuel costs, the main contributor to cost at 32.8% in 3QFY19, rose 21.6% y-o-y with higher fuel prices and volume consumed from the expansion in operations. For 4QFY19, SIA has hedged 80% of its fuel needs in MOPS at a weighted average price of US$74.
  • Longer-dated Brent hedges with maturities extending to FY23/24 cover up to 45% of SIA’s projected annual fuel consumption, at average prices ranging from US$55-63/bbl.

Overall demand outlook clouded by macro events

  • Looking ahead, overall passenger bookings in the forward months are tracking capacity growth, but uncertainties surrounding US-China tariffs and their consequent effects on global trade flows, as well as Brexit, are clouding the overall demand outlook for both passenger and cargo.
  • Meanwhile, from SIA’s perspective, demand for long-haul flight has been strong, and it is generally happy about performance relating to its US flights. Scoot, however, faces relatively lower load factors in certain routes such as those relating to China and those to North Asia via Bangkok.
  • We tweak our estimates and our fair value estimate rises slightly from S$10.71 to S$11.02.

Low Pei Han CFA OCBC Investment Research | https://www.iocbc.com/ 2019-02-15
SGX Stock Analyst Report BUY MAINTAIN BUY 11.02 UP 10.710