Singapore Airlines - DBS Research 2019-08-01: A Modest Start To FY20


Singapore Airlines - A Modest Start To FY20

  • SINGAPORE AIRLINES (SGX:C6L)'s 1Q20 EBIT improved 4% y-o-y to S$200m on 7%revenue growth to S$4.1bn.
  • Higher finance charges and associate losses dragged net earnings to decline 20% y-o-y to S$111m.
  • Expect earnings to be stronger sequentially ahead as transformation programme bears fruit.
  • Maintain BUY, Target Price S$10.80.

What’s New

  • SINGAPORE AIRLINES (SGX:C6L) reported 1QFY20 core operating profits that were in line with expectations but share of losses at Virgin Australia caused net earnings to be slightly below expectations.
  • Revenue for the quarter grew by 6.7% y-o-y to S$4.1bn, led by firm passenger carriage growth of 8% at flagship SIA. This offset lower revenues at SIA Cargo and Silkair, which was impacted by the grounding of its six B737-MAX aircraft.
  • Operating expenditure grew slightly faster than revenue at 6.9%, with hedging gains partially offsetting higher fuel costs. As a result, operating earnings improved 3.6% y-o-y to S$200m.
  • EBIT contributions from the key segments were mixed, with a strong performance from the flagship SIA segment (+28% y-o-y to S$232m) offsetting weaker showings at Silkair (losses of S$16m vs. breakeven a year ago) and Scoot (S$37m loss vs. S$1m profit). Below the EBIT line, higher finance charges and losses from associates of S$30m (versus a gain of S$1.3m a year ago), due to higher estimated losses from Virgin Australia, caused net earnings to decline by 20% y-o-y to S$111m.
  • Despite the modest start to Singapore Airlines’s financial year, there are encouraging signs that its flagship segment, which contributes the bulk of the group’s earnings, is doing well amidst challenges for its other segments. The firm revenue growth at the flagship SIA segment is a positive sign that its transformation continues to bear fruit.
  • Furthermore, the first quarter is seasonally the weakest quarter and we expect earnings ahead to show sequential improvement.

Maintain BUY with Target Price of S$10.80, against a projected ROE of 7% for FY20F.

  • Our target price is based on 0.95x FY20F P/BV, which is at Singapore Airlines’s 5-year average price-to-book valuation.

Paul YONG CFA DBS Group Research | https://www.dbsvickers.com/ 2019-08-01
SGX Stock Analyst Report BUY MAINTAIN BUY 10.800 SAME 10.800