Singapore Airlines (SIA) - OCBC Investment 2021-08-02: 1QFY22 Net Loss Narrowed To S$409mil

SINGAPORE AIRLINES LTD (SGX:C6L)

Singapore Airlines (SIA) - 1QFY22 Net Loss Narrowed To S$409mil

SIA (SGX:C6L) released 1QFY22 business updates which met our expectations. 1QFY22 revenue rose 52.2% y-o-y to S$1.3b on the back of higher passenger flown revenue (+S$277m) and cargo and mail revenue (+32.3% y-o-y). While PATMI remained in the red this quarter, it narrowed from a loss of S$1.1b in 1QFY21 to a loss of S$409m, helped by recovery in air travel, a fuel hedging gain of S$13m, mark-to-market gains of S$72m on ineffective fuel hedges (vs. S$464m losses in the same period last year) and the absence of non-cash impairment charges relating to the liquidation of NokScoot.

Passenger traffic grew 27.3% y-o-y and passenger capacity rose to 28% of pre-COVID-19 levels in 1QFY22 as SIA progressively rebuilds its network.
SIA plans to reinstate 33% and ~50% of pre-COVID-19 capacity and city links respectively by Sep 2021. This is in-line with the Singapore government’s plan for quarantine-free travel in Sep and a gradual and selective opening of borders by end of 2021 as the nation reaches 80% of full vaccination rate in Sep.

While we see a gradual recovery ahead as vaccination rates gain pace and Singapore aims to open its border by year end, SIA is likely to remain in losses for FY22 as any travel arrangements have to be bilateral and takes time. The recovery trajectory will depend on government regulations, the risk profile of individual regulatory authorities and vaccination rates.
SIA is trading at forward P/B of 1.2x, ~3 standard deviation above its historical mean. Valuations do not look attractive. After adjustments and applying a slight ESG premium, our fair value estimate for SIA increases from S$4.75 to S$4.90.
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SIA scores better than its global peers in terms of social issues due to its robust compensation practices, higher customer satisfaction and on-time performance metrics. However, SIA’s governance and environment scores rank below the industry average.
As a state-owned firm, minority shareholders of SIA may face risks of their interests being subsumed by those of the Singapore government. While SIA operates a relatively young fleet, and has reduced its carbon emission intensity by an average of 12% per year, its emission intensity still exceeds the industry average. However, SIA appears to have stepped up its environmental efforts to achieve net zero carbon emissions by 2050, with continued investment in new generation aircraft, adoption of low-carbon technology such as sustainable aviation fuels and carbon offsetting.

Chu Peng OCBC Investment Research | https://www.iocbc.com/ 2021-08-02

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