Singapore Airlines (SIA) - UOB Kay Hian 2021-01-14: Likely To Be In The Red In 3QFY21 As Load Factors Dip Q-o-q


Singapore Airlines (SIA) - Likely To Be In The Red In 3QFY21 As Load Factors Dip Q-o-q

  • Singapore Airlines’ latest operating statistics (see SIA's announcement dated 11-Jan-20), not surprisingly, offers little to cheer and the carrier is likely to report a similar core loss of approximately S$470m for 3QFY21 (Oct 2020 to Dec 2020).
  • For FY22 and FY23, we have assumed that group pax traffic will amount to 33% and 85% respectively of pre-pandemic levels and have factored in a 43% rise in pax yields for the parent airline in FY22.
  • For now, we maintain our fair value valuation, valuing Singapore Airlines at 0.9x FY22F’s book value. Maintain SELL.

Q-o-q improvement in traffic for 3QFY21, but load factors dip.

  • Singapore Airlines (SIA, SGX:C6L)’s capacity growth outpaced traffic growth and this could potentially be due to the suspension of the Singapore and Hong Kong travel bubbles for the parent airline and renewed COVID-19 concerns.
  • Still, December’s pax traffic was the highest since COVID-19, though load factors for the period at 14% was only marginally better than November’s 13.9%. See SIA's announcement dated 11-Jan-20 for December 2020 operating results.
  • Group pax capacity as at Dec 20 amounted to 18.6% of pre-COVID-19 vs guidance of 20%. SIA guided that group capacity will amount to 25% of pre-COVID-19 by Mar 21 and that it plans to operate 45% of points, prior to the pandemic.

Cargo operations the sole bright spot

  • Cargo operations the sole bright spot with higher q-o-q load factors and if yields hold up we expect q-o-q improvement in revenue.
  • In late-December SIA transported COVID-19 vaccines and the carrier recorded a 6.1% m-o-m improvement. We estimate that the bulk of the vaccines would be delivered by 1Q21.

SIA's 3QFY21 core earnings unlikely to be materially different from 2QFY21’s core loss of S$470m.

  • In 2QFY21, SIA's core net loss excluding impairment charges amounted to roughly S$470m and barring further impairment, we expect SIA to report similar losses. Grants from the Job Support Scheme (JSS) are expected to be lower for 3QFY21 and this could lead to a higher cash burn q-o-q.

Cash burn likely to continue

  • As at 13 Dec 20, SIA had utilised S$7.1b or 80% of the rights and convertible bond proceeds. This includes S$0.9b utilised from 14 October - 13 December with S$0.5b utilised for opex, S$0.2b for ticket refunds and another S$0.2b for interest and debt repayments.
  • At this stage, we are unsure if the latest cash burn factors in cash inflow from the October payout under the JSS.

A digital travel pass could be a precursor to opening up international travel.

  • SIA is currently adopting the International Air Transport Association’s digital travel pass framework which:
    • allows passengers to check on testing and vaccine requirements;
    • provides details on qualified testing centres; and
    • enables such centres to provide certifications and results securely via the app.
  • While this could facilitate more efficient check-ins and immigration clearances, the stringent travel requirements could deter business and even leisure travel, especially for large families. A comprehensive COVID-19 travel insurance for both inbound and outbound travelers is also needed to encourage travel.
  • For FY21, we have assumed that capacity would amount to 51% of pre-COVID-19 capacity and traffic will amount of pre-COVID-19 traffic.

Maintain SELL.

K Ajith UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-01-14
SGX Stock Analyst Report SELL MAINTAIN SELL 3.800 SAME 3.800