Excluding one-off items, Singapore Airlines’s (SIA) 1Q14 results came in below expectations. Revenue would have fallen slightly while PATMI was inflated by exceptional items and aircraft/parts disposal gains. ). SIA remains plagued by intense competition within the premium carrier space and passenger yields continue to stay depressed. With the outlook for FY14 still expected to remain lacklustre, we anticipate an extension of selling pressure on the counter for the interim. Based on a peg of 0.8x P/Book, we maintain SELL on SIA with a fair value estimate of S$9.50 (S$10.00 previously).
One-off items boost 1Q14 results
Excluding one-off items, Singapore Airlines’s (SIA) 1Q14 results came in below expectations. Revenue – sans a S$75m settlement related to changes in aircraft delivery slots – would have fallen slightly by 0.3% YoY to S$3,765.2m and resulted in a much smaller operating profit while PATMI (+56.2% YoY to S$121.8m) was inflated by S$18.4m in exceptional items and S$13.9m from aircraft disposal gains.
Yields continue to slide for parent airline
In terms of operating statistics, both the parent airline and SilkAir suffered from declining passenger load factors (PLF) as capacity expansion outpaced increases in passenger carriage. However, greater competition and unfavourable currency movements affected SIA more as yields fell for the second straight quarter to 11.1 S¢/pkm from 11.4 S¢/pkm in 1Q13 and 11.2 S¢/pkm in 4Q13.
Outlook remains weak
The operating environment in the coming months remains challenging for the group and we expect yields to stay depressed. Although SIA has indicated healthy forward passenger bookings for the next few months, the expansion of SIA’s flight network could lead to capacity continuing to outpace passenger carriage. In addition, the reprieve from lower fuel prices in 1Q14 seems to be temporary in nature with crude oil prices increasing over the past three weeks, which could result in a similar catch up for jet fuel prices. Lastly, the cargo segment is also likely to stay weak given the persistent weakness in global manufacturing activity and tepid consumer demand.
Maintain SELL
Given the weak set of core operating performance and a lack of positive catalysts ahead, we expect selling pressure to remain and reduce our fair value to S$9.50 (S$10.00 previously), based on a peg of 0.8x P/B. Maintain SELL.
Excluding one-off items, Singapore Airlines’s (SIA) 1Q14 results came in below expectations. Revenue – sans a S$75m settlement related to changes in aircraft delivery slots – would have fallen slightly by 0.3% YoY to S$3,765.2m and resulted in a much smaller operating profit while PATMI (+56.2% YoY to S$121.8m) was inflated by S$18.4m in exceptional items and S$13.9m from aircraft disposal gains.
Yields continue to slide for parent airline
In terms of operating statistics, both the parent airline and SilkAir suffered from declining passenger load factors (PLF) as capacity expansion outpaced increases in passenger carriage. However, greater competition and unfavourable currency movements affected SIA more as yields fell for the second straight quarter to 11.1 S¢/pkm from 11.4 S¢/pkm in 1Q13 and 11.2 S¢/pkm in 4Q13.
Outlook remains weak
The operating environment in the coming months remains challenging for the group and we expect yields to stay depressed. Although SIA has indicated healthy forward passenger bookings for the next few months, the expansion of SIA’s flight network could lead to capacity continuing to outpace passenger carriage. In addition, the reprieve from lower fuel prices in 1Q14 seems to be temporary in nature with crude oil prices increasing over the past three weeks, which could result in a similar catch up for jet fuel prices. Lastly, the cargo segment is also likely to stay weak given the persistent weakness in global manufacturing activity and tepid consumer demand.
Maintain SELL
Given the weak set of core operating performance and a lack of positive catalysts ahead, we expect selling pressure to remain and reduce our fair value to S$9.50 (S$10.00 previously), based on a peg of 0.8x P/B. Maintain SELL.
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