Singapore Airlines (SIA) - DBS Research 2020-07-30: 1QFY21 Sees S$1.1bn Loss On Decimated Passenger Demand


Singapore Airlines (SIA) - 1QFY21 Sees S$1.1bn Loss On Decimated Passenger Demand

  • Net loss of S$1,123m in 1QFY21 on revenue decline of 79% y-o-y as passenger carriage plunged 99.5% y-o-y.
  • Singapore Airlines’s current view for planning purposes is that passenger capacity may only reach half of pre-COVID-19 levels by March 2021.
  • On-going network review may lead to material impairment of older generation aircraft, especially for the A380, which could account for c.S$1bn in impairment.
  • Maintain HOLD as outlook remains highly uncertain.

Record loss of S$1.1bn in 1QFY21

  • Singapore Airlines (SGX:C6L)'s group revenue declined by 79% y-o-y to S$851m as passenger carriage plunged 99.5% y-o-y, offset by improvement in cargo revenue as there was strong demand for urgent movements of personal protective equipment, fresh foods and pharmaceuticals.
  • Operating earnings fell from a profit of S$200m in 1Q20 to a loss of S$1,037m in 1Q21, which included fuel hedging ineffectiveness charges of S$464m, as the group adjusted downwards the expected rate of recovery in the international air travel market.
  • As a result, Singapore Airlines recorded a net loss of S$1,123m, which included S$127m in expenses from the liquidation of NokScoot while a swing from tax expense to tax credit partially offset the group’s losses.

SIA's earnings outlook remains highly uncertain

  • Singapore Airlines expects its passenger capacity by the end of 2QFY21, or September 2020, to come in at c.7% compared to pre- COVID-19 levels as green lane arrangements with selected cities in China have been established and some restrictions lifted on transit through Singapore. Agreements with other countries or regions such as Malaysia and Europe have also been agreed or are on-going. The lifting of border controls and travel restrictions however, remain at a slow pace globally.
  • Meanwhile, the group continues to look at ways to increase its cargo capacity to meet demand, including providing cargo-only passenger flights. The strong performance of the cargo business (+173% y-o-y during the quarter for cargo yield) was mainly due to exceptional demand for emergency movements in April, coupled with a lack of supply in the market. Cargo yields are expected to moderate but remain elevated in the months ahead.
  • Singapore Airlines is currently reviewing its network over the longer term given the COVID-19 outbreak and its impact on passenger traffic and revenue, and signalled that this is likely to lead to a material impairment of older generation aircraft, especially the A380s (15 owned, four leased), which could account for c.S$1bn in impairment charges alone.
  • After raising S$8.8bn through its recent rights issue of equity shares and mandatory convertible bonds, and together with fresh liquidity through other debt channels, including the renewal of existing committed lines until 2021 or later and aircraft secured financing, Singapore Airlines has seen an S$11bn increase in liquidity to ride through the current crisis. Furthermore, Singapore Airlines has the option to raise another S$6.2bn in additional mandatory convertible bonds if need be.

Maintain HOLD; the key to recovery for SIA most likely depends on a vaccine being developed as soon as possible

Paul YONG CFA DBS Group Research | https://www.dbsvickers.com/ 2020-07-30
SGX Stock Analyst Report HOLD MAINTAIN HOLD 3.750 SAME 3.750