Singapore Airlines

UOBKayhian on 19 Mar 2014

FY14F PE (x): 31.5
FY15F PE (x): 29.1
Weak Jan-Feb 14 pax traffic growth of 0.2% yoy. Traffic growth was marginally lower than capacity, resulting in 2M14 loads declining 0.3ppt to 78.0%. SIA attributed the weaker loads partly to softer demand to Bangkok. 11MFY14 pax traffic growth stood at 2.0% vs our full-year estimate of 1.9%. SIA continues to guide for weak yields. The airline highlighted a challenging operating environment and indicated that efforts to stimulate demand to maintain loads will continue to pressure yields. Cargo load factor of 59.4% marks its weakest for Jan-Feb period in the past five years. Loads were weak as cargo traffic dropped 5.5% yoy, even as capacity expanded. While SIA attributed the weakness to softer seasonal demand, we note 2M14 cargo load factors were its lowest since FY09. This contrasts with an average 2.9% expansion in Singapore’s Jan-Feb 14 NODX. SilkAir bucked the trend with 6.4% traffic growth in Jan-Feb 14. Still, the higher capacity resulted in a marginal decline in loads. SilkAir currently flies to just three destinations in Thailand (Chiang Mai, Koh Samui and Phuket) and were likely less affected by the political turmoil in Bangkok.

Maintain BUY. SIA trades at 0.7x P/B ex SIAEC. We value SIA (ex-SIAEC) at 0.75x forward book and adjust for its fair value stake in SIAEC. Our target price of S$10.70 implies 0.94x FY15F P/B (at group level). Given that the stock has risen 9% since we last upgraded the stock, ideally we would be buyers on weakness. Including dividends, SIA would offer 7.3% upside to our target price. However, if electronics NODX improves in the upcoming months, cargo losses could abate and profitability could improve. As such, we maintain our BUY recommendation.