Singapore Airlines (SIA) - CGS-CIMB Research 2021-07-30: Lowest Quarterly EBIT Loss Since Pandemic

SINGAPORE AIRLINES LTD (SGX:C6L)

Singapore Airlines (SIA) - Lowest Quarterly EBIT Loss Since Pandemic

SIA's 1QFY22 core net loss of S$430m in-line at 26% of our full-year loss estimate of S$1.66bn; consensus net loss forecast of S$902m appears too optimistic.
Reiterate ADD rating on SIA as we expect international travel to resume gradually from late-CY21F before becoming more meaningful by mid-CY22F.
Our target price is reduced slightly, as we deduct an assumed 5% YTM on half of the MCBs.

SIA (SGX:C6L)’s core net loss of S$430m for 1QFY3/22 was sharply narrower than the S$1bn loss for 1QFY21, as cumulative ineffective fuel hedging losses of S$462m were transferred from balance sheet equity into the P&L during 1QFY21, to reflect the fact that SIA had over-hedged relative to its actual fuel requirements.
By contrast, SIA benefitted from fuel hedging gains in 1QFY22 (S$13m), and mark-to-market gains on the fuel derivatives (S$72m), as spot Brent prices have rallied to above the derivatives’ strike prices. The group pax airlines also deployed much more ASK capacity in 1QFY22 vs the trough in 1QFY21. On a q-o-q basis, SIA reported narrower EBIT loss, as
1. the SQ and MI pax airlines combined saw slightly narrower core EBIT loss of S$502m in 1QFY22 vs 4QFY21’s S$517m loss;
2. SIA Cargo saw stronger core EBIT profit of S$433m vs S$312m; partially offset by
3. Scoot’s higher core EBIT loss of S$110m vs S$59m.
We highlight that SIA’s 1QFY22 EBIT loss was its lowest since the outbreak of the COVID-19 pandemic. Despite this achievement, SIA’s core net loss in 1QFY22 of S$430m was wider than the immediately preceding 4QFY21’s core net loss of S$321m, most likely due to higher interest expense, and/or lower deferred tax credits.

SIA said it had already deployed 28% of its pre-COVID-19 passenger gross cash balance of S$13.7bn almost as much as its gross debt balance of S$15.1bn. SIA has access to S$2.1bn of undrawn credit lines and additional headroom of S$6bn for sale and leaseback transactions of various aircraft. As such, SIA is well positioned to be a competitive winner in the post-pandemic world, in our view.

See
Our target price for SIA is based on an unchanged target P/BV multiple of 1.06x (+1 standard deviation above the mean since 2011 of 0.93x), applied to the end-FY22F adjusted BVPS. We reduce our target price slightly. See report attached below for complete details on target price computation.
We use a P/BV that is above the mean in order to reflect our cautious optimism that international travel markets will open more meaningfully by mid-CY22F, which may rerate SIA's share price.

Raymond YAP CFA CGS-CIMB Research | https://www.cgs-cimb.com 2021-07-30

SGX Stock Analyst Report ADD MAINTAIN ADD 5.54 DOWN 5.640