Thursday, 17 September 2015

Singapore Airlines

UOBKayhian on 16 Sept 2015

FY15 PE (x): 35.2
FY16F PE (x): 39.7

SIA’s load factors improved in major markets Europe and US amidst fierce competition. SilkAir’s improved load factors for July and August should lead to higher profitability for 2QFY16. Cargo traffic surprised on the upside but loads remained weak. While SIA has expressed concern on yields, we believe that the market has priced in the risk at current levels. Upgrade to HOLD. Suggested entry price is S$9.60. Target price: S$10.70. SIA’s load factors improved for two consecutive months. The 2.5ppt increase in August’s pax load factor was mainly due to a 2.1% capacity reduction. More encouraging was the fact that load factors improved for key long-haul sectors Europe (+1.6ppt) and the US (+0.6ppt). SIA attributed the improved load factors to “healthy summer travel demand and promotional activities”. SilkAir’s August load was the highest for the year. The 4.7ppt increase came on the back of strong loads in East and West Asia. SilkAir also benefitted from strong loads in the Pacific, likely boosted by the new route to Cairns Upgrade to HOLD; maintain target price of S$10.70. We upgrade SIA to HOLD as we believe that the market has priced in the weaker yields for 2QFY16. At current levels, SIA is trading close to -1SD to the long-term mean or 0.73x FY16F book, ex-SIAEC. Excash assets, this equates to just 0.55x book. A stronger US dollar would provide upside risk to our earnings estimates, which remain below consensus. Suggested entry price is S$9.60.

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