Singapore Airlines

Kim Eng on 3 Feb 2012


Lower earnings, but earnings nonetheless. Singapore Airlines (SIA) posted 3QFY Mar12 net profit of $135.2m, a 53% decline over 3QFY Mar11. Despite the erosion, we contend that posting profits in such a challenging environment was a creditable performance. While the numbers were slightly below expectations due to sustained high fuel prices, we still see SIA as the airline best-positioned to emerge into strength from the current downturn. We maintain our Buy call and target price of $14.40. Our valuation of 1.2x P/BV is based on SIA’s robust balance sheet.


Revenue sustained in a seasonally strong quarter. Revenue was up 1% YoY in the seasonally strongest holiday quarter, with passenger yields sustained at 12.1cts pkm. Passenger load factors, however, did decline due to additional capacity coming on-stream. Cargo load factors remained flat but yields declined. SilkAir remains the star performer, with load factors hovering around 80% and yields up 4%.


Costs up due to fuel. Unit costs were up across all segments, with the main culprit being fuel. SIA’s fuel bill for the quarter rose 35% YoY to $1.5b; however, the run rate is consistent with the previous quarter, after factoring in additional capacity during the peak season. Overall, other operating costs were well contained. Notably, SIA also posted a rare $11.9m loss on the disposal of aircraft and spares.


Most units profitable. In summary, the parent airline posted an operating profit of $137m, SIA Engineering recorded an operating profit of $28m, while SilkAir’s stood at $32m. Cargo remained in negative territory, with an operating loss of $40m. Based on this earnings scorecard, we are trimming our FY Mar12 forecasts by just 3.5% to $512.7m, while FY Mar13 and FY Mar14 forecasts are largely unchanged.
No change to our outlook. With operating earnings volatile and near breakeven, we retain our asset-based valuation of SIA. Our target price is unchanged at $14.40, based on 1.2x P/BV. We will provide further updates following today’s analysts’ meeting with management.