- Maintain BUY & SGD12 TP (1.05x FY3/16E P/BV), after rollover to FY3/16.
- Major beneficiary of falling oil prices. Recent USD strength inconsequential.
- FY3/15E-17E EPS raised by 18-42% for cheaper fuel partially offset by larger losses from Tigerair.
We raise FY3/15E-17E EPS by 18-42% on lower fuel-price assumptions. Oil prices have corrected to their lowest level since Jun 2012, on oversupply anxieties. According to press reports, Saudi Arabia has cut its official crude selling prices, suggesting that the price downtrend could be sustainable. Jet fuel prices have declined 18% YTD to USD105/bbl. With fuel at c.40% of its expense, SIA should be a major winner, in our view.
By how much will it benefit?
Our sensitivity analysis suggests that every USD5/bbl decline in jet fuel prices could add SGD0.17 or 22% to our FY3/16E EPS, ceteris paribus. About 52% of SIA’s FY3/15E jet-fuel need has been hedged at c.USD116/bbl. SIA can hedge up to eight quarters ahead.
Reiterate BUY, TP unchanged at SGD12
Our estimates are substantially above consensus. We believe the Street has yet to model in the sharp oil-price decline. A positive earnings-revision cycle could be on the way, we reckon. While regional overcapacity remains a threat, we believe the market has not given SIA enough credit for its proactive capacity cutbacks (FY3/15E: only +1% YoY for parent airline). Loads remain high in spite of the industry’s surplus. And despite its strongest balance sheet of SGD3.60 net cash per share, SIA trades at a 12% P/BV discount to full-service carriers in Asia. Reiterate BUY with catalysts from potential EPS upgrades. SGD12 TP unchanged after our rollover to 1.05x FY3/16E P/BV, 0.5 SD below its 10-year mean.
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