- 1QFY3/15 core net income of SGD34.5m met expectations.
- Earnings cut by 31-46% for market weakness, to reflect lower management guidance.
- Still, maintain BUY and TP of SGD12.00, set at 1.05x FY3/15E P/BV, for eventual recovery as airlines cut capacity.
1QFY3/15 EBIT weakened to SGD39.5m (1QFY3/14: SGD81.7m; 4QFY3/14: SGD60.3m loss), due to lower operating profits from airlines and engineering, offset by narrower cargo losses. Passenger yields continued to weaken at the parent airline and SilkAir amid regional overcapacity. Management says that outlook for the air transportation industry has become more challenging with continuing uncertain global economic climate, geo-political concerns in the region and elevated fuel prices. Aggressive fares and capacity injections from competitors will continue to place pressure on yields.
What’s Our View
Marginally weaker-than-expected passenger yields were made up by a 4.4% YoY improvement in unit costs at the parent airline. We continue to believe that overcapacity in the region will ease, as airlines scale back their expansion. This should support an eventual recovery in yields and earnings at SIA, which is why we maintain BUY.
However, market weakness could keep yields depressed for a more prolonged period than we initially expected given the operational challenges. We cut our FY3/15E-17E net income by 46%/35%/31% for new yield/capacity assumptions. However, our TP remains at SGD12.00, based on an unchanged 1.05x FY3/15E P/BV.
No comments:
Post a Comment