Singapore Airlines (SIA) - DBS Research 2019-11-06: A More Modest Recovery

SINGAPORE AIRLINES LTD (SGX:C6L) | SGinvestors.io SINGAPORE AIRLINES LTD (SGX:C6L)

Singapore Airlines (SIA) - A More Modest Recovery

  • SINGAPORE AIRLINES (SGX:C6L)'s 2Q net profit grew 68% y-o-y to S$95m, below our expectations as cargo and Scoot’s numbers were weak.
  • Parent airline SIA continued to do well with firm carriage growth and a decent increase in RASK.
  • Earnings recovery is still on track, albeit at a more modest pace.
  • Reiterate BUY with Target Price adjusted down to S$10.40.



Maintain BUY with lower Target Price of S$10.40.

  • Parent airline SIA’s strong performance in the second quarter, with firm carriage growth of 8.2% and Revenue per ASK growth of 1.2%, shows that its transformation programme is bearing fruit and should help a sustained earnings recovery. However, weaker performances at SIA’s cargo operations, Scoot and Silkair means that this expected recovery will now be more modest. The stock is trading at 0.9x FY20 P/BV, which we see as attractive with ROE projected to rebound to 6.8% by FY21.
  • To factor in weaker-than-expected contributions from Scoot, Silkair and SIA Cargo, we lowered our FY20 and FY21 earnings estimates for SIA by c. 15% and 7% respectively.


SIA reported 2Q FYE March 2020 earnings that were below our expectations.

  • Net profit rose by 68% y-o-y to S$95m on revenue growth of 3.9% y-o-y to S$4.2bn, with operating profit declining by 8.5% y-o-y to S$213m. See Singapore Airlines Announcements.
  • During the quarter, EBIT contribution from SIA’s flagship passenger segment fell by 2% y-o-y to S$233m while there was a wider loss at Scoot of S$39m vs S$11m a year ago and SIA Engineering’s contribution rose from S$11m to S$19m. Silkair’s losses stayed flat at S$3m. Finance costs rose by 155% to S$46m on adoption of IFRS 16 lease accounting and higher debt borrowings while lower losses at associates and joint ventures of S$40m vs S$118m a year ago helped pretax earnings to improve by 32% y-o-y to S$138m.
  • Earnings for 1HFY20 rose by 5% y-o-y to S$206m on revenue growth of 5.3% y-o-y to S$8.3bn. An interim dividend of 8 Scts per share was declared. See Singapore Airlines Dividend History.

For the first half of FY20, SIA’s flagship passenger segment continued to demonstrate strong momentum

  • For the first half of FY20, SIA’s flagship passenger segment continued to demonstrate strong momentum in terms of performance, with passenger flown revenue growing by S$481m (on 8.6% y-o-y growth in passenger carriage) and Revenue per ASK growth of 2.4% y-o-y.
  • Cargo revenue however fell by S$138m y-o-y over the same period, which was attributed to an overall drop in demand due to the US-China trade war and a slowdown in exports from key manufacturing countries in Europe and Asia.
  • Silkair was impacted by the grounding of its B737-MAX aircraft with losses of S$19m in 1H20 versus S$3m in 1H19.
  • Meanwhile, Scoot saw its losses widen significantly from S$10m a year ago to S$77m as it reduced aircraft utilisation to improve its operational resilience.


A more modest recovery expected.

  • While parent airline SIA continues to enjoy the fruits of the transformation programme in the form of higher revenue per ASK (RASK) and firmer revenues, the weaker-than-expected performances of SIA Cargo, Silkair and Scoot will drag SIA’s earnings recovery to be at a more moderate pace than expected.
  • To factor in weaker-than-expected contributions from Scoot, Silkair and SIA Cargo, we lower our FY20 and FY21 estimates by c. 15% and 7% respectively. See Singapore Airlines Share Price; Singapore Airlines Target Price.


Where we differ:

  • We have higher-than-consensus forecasts as we are positive on SIA’s transformation programme paying off.





Paul YONG CFA DBS Group Research | https://www.dbsvickers.com/ 2019-11-06
SGX Stock Analyst Report BUY MAINTAIN BUY 10.400 DOWN 10.800



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