SIA

OCBC on 11 May 2012

SIA’s FY12 net earnings came in at S$336m, which was 25% and 17% respectively lower than the street’s and our forecasts. Management said tension in the Middle East during 4QFY12 pushed fuel cost up by 15%, which caused profit margins to contract. Furthermore, SIA in 4QFY12 recorded S$79m of one-off losses, of which S$51m was a disposal loss. For the year ahead, management guided that capacities of the parent airline, SIA Cargo and SilkAir will increase by 3%, 3% and 22% respectively. Capex in FY13 is budgeted to be ~S$1.6b. Passenger yields will likely come under further pressure though fuel prices are expected to remain high. Demand for air freight is unlikely recover before 2HFY12. We maintain our fair value estimate of S$10.85/share and HOLD rating on SIA.

SIA misses consensus estimate in FY12
In our last report on 3 Feb 2012, we highlighted that Singapore Airlines’ (SIA) FY12 PATMI will likely miss consensus estimate. True enough, SIA’s FY12 net earnings came in at S$336m, which was 25% and 17% respectively lower than the street’s and our forecasts. Management said tension in the Middle East during 4QFY12 pushed fuel cost up by 15%, which caused profit margins to contract. Furthermore, SIA in 4QFY12 recorded S$79m of one-off losses, of which S$51m was a disposal loss arising from the early withdrawal of the last of Boeing 747 aircraft within the SIA fleet. Management also recommended a final dividend of S$0.10/share.

Most segments were less profitable
Most of SIA’s business segments were less profitable in 4QFY12 than a year ago. The parent airline recorded an operating loss of S$9m, from a profit of S$93m a year ago, after passenger yields fell while fuel prices remained high. SilkAir’s operating profit slipped 3% YoY to S$39m while SIA Cargo swung from a small profit to an operating loss of S$48m. SIA Engineering provided some cheers by recording a 6% YoY growth in operating profit to S$33m.

Capacity will increase in FY13
For the year ahead, management guided that capacities of the parent airline, SIA Cargo and SilkAir will increase by 3%, 3% and 22% respectively. Capex in FY13 is budgeted to be ~S$1.6b. Advance bookings in the current quarter are higher YoY but air travel in 1QFY12 was notably disrupted by last year’s earthquake in Japan. Passenger yields will likely come under further pressure though fuel prices are expected to remain high. Demand for air freight is unlikely recover before 2HFY12.

Maintain HOLD
We maintain our fair value estimate of S$10.85/share and HOLD rating on SIA.