Singapore Airlines (SIA) - UOB Kay Hian 2021-08-02: 1QFY22 38% Q-o-q Reduction In Losses Due To Higher Cargo Revenue

SINGAPORE AIRLINES LTD (SGX:C6L) | SGinvestors.io SINGAPORE AIRLINES LTD (SGX:C6L)

Singapore Airlines (SIA) - 1QFY22 38% Q-o-q Reduction In Losses Due To Higher Cargo Revenue

  • The q-o-q reduction in losses was due to higher cargo revenue and relatively flat non-fuel related costs. While pax traffic was 68% higher q-o-q, pax flown revenue declined q-o-q due to lower yields.
  • Going forward, SIA faces the challenge of having sufficient capacity to cater to both pax and cargo demand. Still, we think that sentiment towards the aviation industry is likely to improve and raise our fair value P/B multiple to 1.1x from 1.0x.
  • Upgrade SIA to HOLD. Target price: S$4.85.



SIA'S 1QFY22 RESULTS

  • 38% q-o-q reduction in net loss is key positive but is in line with expectation. SIA (SGX:C6L)’s top-line q-o-q growth was underpinned by a 21% q-o-q rise in cargo revenue offset some point in the future. SIA has raised S$8.7b in convertible bonds, with an effective 4-6% cost of funding, which would be highly dilutive to shareholders, upon maturity. The ability to fund the redemption of the MCB would depend on traffic recovery and its future capex needs. SIA could redeem the MCB by having another cash call once business conditions stabalise.


STOCK IMPACT



A question of fair value multiples.

  • Very little has changed following the release of 0.9x pre-pandemic levels and now trade at about 30% higher at close to 1.2x FY22’s book value.


EARNINGS REVISION/RISK

  • We have raised our FY22’s loss assumptions by 46%, factoring in lower pax yields.


VALUATION/RECOMMENDATION



SHARE PRICE CATALYST

  • Gradual relaxation of travel restrictions.





K Ajith UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-08-02
SGX Stock Analyst Report HOLD UPGRADE SELL 4.85 UP 4.150



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