Singapore Airlines’s (SIA) 3Q13 results came in below our expectations with operating profit declining 20.4% YoY to S$131.0m. Although revenue held up well during the seasonal travel peak, it came at expense of declining passenger yields (YoY basis) following increased promotional activity, which offset some savings from favourable fuel prices during the quarter. Only with gains from non-operating segments did the Group post a 5.4% YoY improvement in PATMI to S$142.5m. The operating environment remains challenging for SIA with competition heating up and jet fuel prices inching upwards. Coupled with the lack of any near-term catalysts, we temper our optimistic outlook and lower our FY13/14 forecasts accordingly. Given the short run-up in its share price, we maintain HOLD at an unchanged fair value estimate of S$10.85.
3Q13 results below expectations
Falling short of our estimates, Singapore Airlines (SIA) reported a 20.4% YoY fall in 3Q13 operating profit to S$131.0m. Although revenue held up well during the seasonal travel peak – meeting expectations with a 0.4% YoY decline to S$3,860.4m – it came at the expense of declining passenger yields (YoY basis) following increased promotional activity, which offset some savings from favourable fuel prices during the quarter. Only with gains from non-operating segments did the Group post a 5.4% YoY improvement in PATMI to S$142.5m (we had estimated a PATMI of S$176.8m).
Operating performance for segments mixed
With yields under pressure, it was not surprising to see operating profit for the main airline fall 36.5% YoY to S$87m. However, there were some positives with SilkAir’s operating profit up 6.3% YoY to S$34m and SIA Cargo narrowing operating losses by almost 60% to –S$29m.
Challenging environment ahead
Given the tepid demand for premium air travel – and competitive pressures especially in the Asia-Pacific region – we lower our forecasts for SIA after an anticipated uptick in yields failed to materialize. In addition, jet fuel prices have started to creep upwards, and if sustained, will place margins under greater pressure. Therefore, our FY13 and FY14 revenue projections drop by 2.2% and 2.9% respectively, and our operating profit fall by 30.9% and 5.5% respectively.
No clear catalyst for now; maintain HOLD
Promotional activities continue to prop up the Group in the near-term but SIA still lacks a clear catalyst to revive its fortunes. With competing airlines aggressively expanding their footprint e.g. Eithad Airways et al, SIA has responded with greater frequency of flights to protect their market share, and this could lead to further deterioration in passenger yields. Given the short run-up in its share price, we maintain HOLD at an unchanged fair value estimate of S$10.85.
Falling short of our estimates, Singapore Airlines (SIA) reported a 20.4% YoY fall in 3Q13 operating profit to S$131.0m. Although revenue held up well during the seasonal travel peak – meeting expectations with a 0.4% YoY decline to S$3,860.4m – it came at the expense of declining passenger yields (YoY basis) following increased promotional activity, which offset some savings from favourable fuel prices during the quarter. Only with gains from non-operating segments did the Group post a 5.4% YoY improvement in PATMI to S$142.5m (we had estimated a PATMI of S$176.8m).
Operating performance for segments mixed
With yields under pressure, it was not surprising to see operating profit for the main airline fall 36.5% YoY to S$87m. However, there were some positives with SilkAir’s operating profit up 6.3% YoY to S$34m and SIA Cargo narrowing operating losses by almost 60% to –S$29m.
Challenging environment ahead
Given the tepid demand for premium air travel – and competitive pressures especially in the Asia-Pacific region – we lower our forecasts for SIA after an anticipated uptick in yields failed to materialize. In addition, jet fuel prices have started to creep upwards, and if sustained, will place margins under greater pressure. Therefore, our FY13 and FY14 revenue projections drop by 2.2% and 2.9% respectively, and our operating profit fall by 30.9% and 5.5% respectively.
No clear catalyst for now; maintain HOLD
Promotional activities continue to prop up the Group in the near-term but SIA still lacks a clear catalyst to revive its fortunes. With competing airlines aggressively expanding their footprint e.g. Eithad Airways et al, SIA has responded with greater frequency of flights to protect their market share, and this could lead to further deterioration in passenger yields. Given the short run-up in its share price, we maintain HOLD at an unchanged fair value estimate of S$10.85.
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