Singapore Airlines (SIA) - UOB Kay Hian 2021-02-10: S$4.4b In Capex Deferment Is A Key Positive


Singapore Airlines (SIA) - S$4.4b In Capex Deferment Is A Key Positive

  • SIA has finally managed to defer capex by S$4.4b, which would reduce its cash burden substantially over the next two years.
  • More importantly, we believe that the odds of SIA exercising another S$6.2b in MCB would now be lowered. With that, equity holders will face less risk of dilution.
  • We have thus raised our fair value multiple for SIA to 1.0x FY22 and FY23’s average and derived a fair value of S$4.43.
  • Maintain HOLD. Suggested entry price: S$4.00.

SIA defers aircraft delivery leading to S$4.4b in capex pushed back beyond FY25.

  • Singapore Airlines (SIA, SGX:C6L) also stated that the reduced capex will recalibrate the rate of capacity growth over the next few years. The carrier has also coverted its order for 14 B787- 10 aircraft into 11 additional B777-9 aircraft. The latter has about 27% higher seating capacity and has slightly higher range.
  • SIA also appears to have pushed back the B737-Max deliveries beyond FY25. With this revised capex guidance, capex commitment for the next four years would amount to S$16.9b vs S$19.1b previously.

Will SIA now tap into the additional S$6.2b in MCBs following the reduced capex?

  • In our recent note, we highlighted that the decision to raise additional capital will be contingent upon the ability to defer deliveries. FY22’s and FY23’s collective capex is about S$3.7b lower than our prior estimate.
  • On balance, we now believe that SIA will be less likely to exercise the additional mandatory convertible bonds (MCBs), or could potentially seek an extension of the July deadline to issue the additional MCBs.
  • SIA will also have the ability to tap into the sale and leaseback market for its unencumbered assets or sell and leaseback some of the new deliveries.

S$7.1b in cash as at end Dec-20, after raising S$12.7b in liquid funds.

  • Factoring in S$3.1b in capex (previous assumption: S$1.7b), we now estimate that SIA would still have an organic cash burn. We estimate that SIA would still have S$3.4b in cash by year-end. SIA can also tap into another S$9.5b in Medium-Term Notes.

Risk profile lowered significantly but positives reflected in stock price.

  • We have assumed that pax traffic in FY22, would amount to 24% of pre-COVID-19 levels and we have also assumed 50% increase in pax yields from pre-pandemic levels for FY22. Based on this, we estimate SIA's FY22 EBITDA to approximate FY20’s EBITDA at S$2.3b.

Maintain HOLD

K Ajith UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-02-10
SGX Stock Analyst Report HOLD MAINTAIN HOLD 4.43 UP 4.00