Singapore Airlines 1QFY23 Results Preview - UOB Kay Hian 2022-07-14: Expecting A Profitable Quarter


Singapore Airlines 1QFY23 Results Preview - Expecting A Profitable Quarter

  • Driven by a strong pax volume recovery and strong airfares in recent months, Singapore Airlines (SIA, SGX:C6L) is likely to turn in a profit in 1QFY23. We deem the street’s current FY23 full-year net profit forecast of S$316m for SIA (vs our forecast of S$1.35b) conservative and due for positive surprises.
  • Looking beyond upbeat near-term earnings, SIA’s full recovery hinges on Northeast Asia, and its current valuation appears rich to us.
  • Maintain HOLD.

Expect SIA's 1QFY23 reported net profit to come in at S$180m-350m.

  • SIA (SGX:C6L) is scheduled to announce its 1QFY23 (Apr 2022 to Jun 2022) business update on 28 Jul 22 (Thursday) after trading hours. (See Earnings Calendar of SGX Listed Companies).
  • The upcoming business update is the first quarterly reporting after Singapore’s major border measure relaxations (effective from Apr 22) and we expect an overall positive tone from the company.
  • As SIA is now in a turnaround situation whereby a slight variance in any of the underlying operating drivers (e.g. the speed/timing of workforce ramp-up, level of pax yields, etc) would result in significant fluctuations in profitability, we find it difficult to do a quarterly earnings estimate with good accuracy at this juncture.
  • Our guided range of S$180m-350m is based on our best guesstimate, by referring to SIA’s reported net loss of S$210m in 4QFY22 and adjusting for the rise in passenger numbers (about +150% q-o-q in 1QFY23 by our estimate) and surge in airfares in the recent months.

Consensus FY23 full-year forecast for SIA likely to be conservative.

  • According to Bloomberg, the street’s FY23 net profit forecasts for SIA average S$316m. This compares with our FY23 full-year net profit projection of S$1.35b (S$487m if we exclude the impact of a substantial fuel hedge gain of about S$860m by our estimate).
  • We believe the street might have underestimated the power of SIA’s operating leverage and could be positively surprised by its upcoming 1QFY23 results.

Strong near-term recovery momentum well guided.

  • According to SIA, its launched pax capacity has been well booked into 2QFY23 with strong pax yields. In a recent press release, SIA guided to further re-activate its pax capacity to 81% of pre-pandemic levels by Dec 22. This is slightly faster than our projected 75% by Dec 22.
  • Northeast Asia remains a drag. Strong near-term momentum aside, we note that the full recovery of SIA hinges on the re-openings of Northeast Asian countries (which collectively formed 26% of Changi Airport’s passenger throughput in 2019), as they have been significantly lagging against the backdrop of global air travel open-up.
    • China sticking to its “Dynamic Zero-COVID” policies. The country is still in a largely locked-down state and has no timeline of opening up.
    • Japan and Taiwan are gradually opening up their borders but at a very cautious pace.
      • Japan has reopened its borders to travellers on guided tours from 10 Jun 22, but remains closed to individual travellers. It is also limiting the number of overseas arrivals to a daily cap of 20,000, which accounts for about 14% of the country’s average daily overseas arrivals back in 2019.
      • Taiwan has also recently loosened its border controls, allowing entries by international travellers from 15 Jun 22. On-arrival tests and three-day quarantine (followed by a four-day self-initiated pandemic prevention) are required. Taiwan is currently capping the overseas arrivals at 40,000 per week, representing only about 7% of Taiwan’s average weekly overseas arrivals in 2019.
  • As of May 22, air traffic to Singapore from mainland China and the rest of Northeast Asia were only at 3% and 17% of their respective pre-pandemic levels, significantly lagging behind the air traffic to Singapore from the rest of the world.

No change to our forecast of SIA's earnings

  • We will review our financial projection post SIA’s 1QFY23 business update.
    1. SIA's valuation is rich; maintain by SIA’s fundamentals in the long run, as competitors gradually recover/add more capacity, which would gradually drive passenger yields to more normalised levels.
    2. See
    3. Catalyst: News on more Northeast Asian countries opening up (including possible shifts in China’s stance in treating COVID-19).
    4. Risks include:
      1. air traffic recovery losing steam,
      2. a possible recession impacting discretionary air travel demand, and
      3. increasing competition from competitors adding capacities.

    Roy Chen CFA UOB Kay Hian Research | https://research.uobkayhian.com/ 2022-07-14
    SGX Stock Analyst Report HOLD MAINTAIN HOLD 4.850 SAME 4.850