Maintain Buy despite continued slide. Singapore Airlines’ (SIA)November load factors are showing further weakness, especially forpassenger. This is a continuation of the slide seen in October. On thepositive side, fuel prices are coming off in line with an anticipatedslowdown in global economic activity. Fuel remains the biggest swingfactor for earnings. Our valuation is unchanged at 1.2x P/BV, based onSIA’s robust balance sheet. Maintain Buy and target price of $14.40.
Passenger traffic falls for first time. Despite a 2.2% increase incapacity, passenger load factors for November fell to 75.2% from78.9% a year ago. On a YoY basis, traffic itself slipped by 2.6%, thelargest decline this year. Load factors were also slightly belowOctober’s 76.7% on a sequential basis. However, regional airline SilkAircontinued to grow, with passenger traffic up 8.4%, versus an 11.8%increase in traffic, for a relatively healthy load factor of 79.0%.
Cargo has not deteriorated further. Cargo load factors weresustained on a YoY basis at 64.2%, but did decline sequentially as theairline’s seasonal holiday peak came to an end. Both traffic andcapacity were slightly higher on a YoY basis. Overall, SIA did not see aparticularly good performance during its historically busiest period.
Oil prices finally coming off. Crude oil prices are finally showing signsof weakness as a slowdown in global economic activity looms. Crude oilhas declined by about 5% over the past week and jet fuel has followedsuit. The current spot price of US$120.80 per barrel is below our full-year assumption of US$130 per barrel. To recap, our sensitivityanalysis indicates that every US$10 decline in market jet fuel price willboost SIA’s earnings by around S$300m pa.
No change to our outlook. With operating earnings volatile and nearbreakeven, we retain our asset-based valuation of SIA. Our target priceis unchanged at $14.40, based on 1.2x P/BV. The 2008 troughvaluation was a P/BV of 0.8x, translating to an implied floor of $9.50.
Passenger traffic falls for first time. Despite a 2.2% increase incapacity, passenger load factors for November fell to 75.2% from78.9% a year ago. On a YoY basis, traffic itself slipped by 2.6%, thelargest decline this year. Load factors were also slightly belowOctober’s 76.7% on a sequential basis. However, regional airline SilkAircontinued to grow, with passenger traffic up 8.4%, versus an 11.8%increase in traffic, for a relatively healthy load factor of 79.0%.
Cargo has not deteriorated further. Cargo load factors weresustained on a YoY basis at 64.2%, but did decline sequentially as theairline’s seasonal holiday peak came to an end. Both traffic andcapacity were slightly higher on a YoY basis. Overall, SIA did not see aparticularly good performance during its historically busiest period.
Oil prices finally coming off. Crude oil prices are finally showing signsof weakness as a slowdown in global economic activity looms. Crude oilhas declined by about 5% over the past week and jet fuel has followedsuit. The current spot price of US$120.80 per barrel is below our full-year assumption of US$130 per barrel. To recap, our sensitivityanalysis indicates that every US$10 decline in market jet fuel price willboost SIA’s earnings by around S$300m pa.
No change to our outlook. With operating earnings volatile and nearbreakeven, we retain our asset-based valuation of SIA. Our target priceis unchanged at $14.40, based on 1.2x P/BV. The 2008 troughvaluation was a P/BV of 0.8x, translating to an implied floor of $9.50.
No comments:
Post a Comment