Singapore Airlines (SIA) - CGS-CIMB Research 2021-02-10: Capex Pushed Forward To Future Years


Singapore Airlines (SIA) - Capex Pushed Forward To Future Years

  • SIA announced its revised capex plan yesterday; the large 30-42% reduction in capex for FY21-22F is not unexpected and should not surprise the market.
  • Reiterate ADD on SIA with a slightly higher target price of S$4.90, still based on P/BV of 0.94x (mean since 2011) against the end-FY22F adjusted BVPS.
  • Potential re-rating catalysts include fuel derivative MTM gains in 4QFY21F that may enable SIA to deliver another narrow quarterly loss.

SIA's negotiations with Airbus and Boeing completed

  • Singapore Airlines (SIA, SGX:C6L) completed negotiations with Boeing on the restructuring of its aircraft orderbook, after negotiations with Airbus had been completed several months earlier, and announced the new orderbook and capex spending guidance yesterday. None of the orders had been cancelled outright, although the annual capex guidance over the next 3-4 years has been reduced, which indicates that the orderbook delivery profile will be stretched out over several more years than originally contracted.
  • SIA's capex for the current financial year ending Mar 2021 (FY21F) has been reduced from S$5.3bn to S$3.1bn (-42%), and for FY22F from S$5.7bn to S$4bn (-30%), but capex for FY23F and FY24F have been cut by less than 10% each against the previous guidance given in May 2020.
  • As at 9 Feb, SIA group’s aircraft orderbook stands at 142 planes, i.e. 15 x A350s, 15 x 787-10s, 5 x 787- 8/9s, 31 x 777-9s, 31 x 737 MAX 8s, 29 x A320neos, and 16 x A321neos (of which 10 will be delivered by aircraft lessors and six will be delivered by Airbus directly). The new plane-by-plane orderbook delivery profile has not been disclosed.

SIA's orders for smaller 787-10s partially swapped to larger 777-9s

  • The other notable change to the orderbook was that SIA’s orders for 14 x 787-10s were replaced by 11 x 777-9 orders. The 787-10s were intended for SIA mainline to serve regional and medium-haul (MH) destinations, while the 777-9s were intended to replace SIA mainline’s ageing 777-300ERs on long-haul (LH) flights.
  • SIA has 27 x 777-300ERs, and orders for 31 x 777-9s; hence the 777-9s may not only fully replace the 777-300ERs, but also potentially replace a few of SIA’s 19 x A380s, of which several may be permanently retired. The 777-9s may also be used on MH missions on selected routes in between LH flights to improve aircraft utilisation.
  • SIA retains orders for 15 x 787-10s post-restructuring, to replace the existing 8 x A330s and 5 x 777-300s on MH missions.

Market response should be muted

Raymond YAP CFA CGS-CIMB Research | https://www.cgs-cimb.com 2021-02-10
SGX Stock Analyst Report ADD MAINTAIN ADD 4.90 UP 4.890