Singapore Airlines (SIA) - UOB Kay Hian 2021-05-21: 2HFY21 Little To Cheer With Additional S$6.2b In MCB Issuance


Singapore Airlines (SIA) - 2HFY21 Little To Cheer With Additional S$6.2b In MCB Issuance

  • While SIA's earnings were within expectation, the issuance of the S$6.2b in MCB offers shareholders little to cheer, aside from buying the carrier time to ride out the crisis. Still, the MCB will eventually be dilutive given that it has a 6% semi-annual yield to call. The accrued interest on the MCB is also carried off-balance sheet but in valuing SIA, we have factored in dilution from the deemed conversion of the MCB, including accrued interest.
  • Maintain SELL for SIA.

SIA's FY21 Results

Full-year street estimate of S$3.55b loss.

  • Singapore Airlines (SIA. SGX:C6L) reported a lower h-o-h loss primarily due to a 33% h-o-h increase in revenue, S$350m in fuel hedging gains vs a S$563m charge in 1HFY21. SIA also recognised S$286m in impairment charges in 2HFY21 on surplus aircraft. Cargo revenue was also 18.5% higher in 2H vs 1H. Total impairment charges in FY21 amounted to S$1.73b on 45 surplus aircraft.
  • SIA generated an operating cash deficit of S$3.3b in FY21, mainly due to ticket refunds and payments to creditors. Excluding working capital changes, SIA was cash flow positive to the tune of S$131.7m, but this excludes lease payments of S$552m.
  • Total debt to equity fell from 1.27x to 0.9x. However, if S$3.5b in Mandatory Convertible Bonds (MCB) were excluded, SIA's debt-to-equity would amount to 115%.
  • Book value per SIA share (BVPS) stood at S$5.36, as at end FY21, however excluding S$3.5b in MCB, BVPS would amount to S$4.18.

Plans to issue S$6.2b in additional MCB, 44% of which would be used to fund capex.

  • 24% of the MCB would be used for debt servicing, while the remainder would be used to fund opex and fixed costs. The renounceable zero-coupon MCB will be allocated on the basis of 209 MCB for every 100 existing shares, but Temasek has given an undertaking to take up its share and all unsubscribed portions.
  • Priced at S$1.00, the initial conversion price is at $4.84, with a 6% annual yield to conversion, compounded on a semi-annual basis.
  • As at end-FY21, SIA had raised S$14.6b in capital and had raised a further S$0.8b via sale and leaseback of four aircraft in Apr 21. Collectively, including the latest tranche of MCB, SIA would have raised S$21.6b since the pandemic started.

Monthly operating cash burn has declined to about S$100m-150m from S$250m in Feb 21.

  • However, we expect the reduction in government grants could eventually lead to higher cash burn if borders do not open up.

SIA plans to raise pax capacity to 32% of pre-pandemic levels (Jan 20) by Jul 21.

  • In comparison, SIA’s group pax capacity in Apr 21 was 24% of the pre-pandemic level. While SIA expects the incremental bellyhold cargo on such flights to cover variable costs, losses could potentially rise if capacity is too aggressive and if cargo yields start to falter. 2HFY21’s cargo yield was 10% lower h-o-h.
  • In FY22, SIA will be taking delivery of 24 aircraft as well as 8 B737 Max which were previously grounded.


Accrued interest on MCB not recognised in P&L or reserves, thus book value is not indicative of dilution.

  • SIA highlighted that MCB would not be immediately dilutive and it would adjust for accrued interest if it redeems the MCB fully or partially. In valuing SIA, we have treated the MCB as equity but factored in annual dilution from the accrued interest. If MCB, excluding accrued interest is excluded from shareholders’ equity, BVPS for FY22 would amount to S$3.92 while if included it would amount to $3.20.


  • There are minimal changes to our FY22 earnings forecast but we have raised our FY23 earnings by 16% after factoring in a higher load factor and lower opex.


Maintain SELL.


  • None.

K Ajith UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-05-21
SGX Stock Analyst Report SELL MAINTAIN SELL 4.15 DOWN 4.400