- 2QFY3/15 net income of SGD90.9m in line. Strength attenuated by sharp losses at Tigerair.
- Regional overcapacity to weigh further on top line. But much cheaper jet fuel to provide cost relief.
- Maintain BUY & TP of SGD12. Catalysts from potentially sharp EPS rebound.
2QFY3/15 net income of SGD90.9m, down 42% YoY, was in line. 1HFY3/15 forms 28% of our FY3/15E forecast and 37% of the market’s. Group EBIT improved 51.6% YoY to SGD131.7m, led by better fuel efficiency. Parent strength was wiped out by sharp losses from Tigerair from one-off charges. The decline in passenger yields is getting smaller, at 0.9% YoY or flat QoQ. Load factors improved across major units as it kept capacity expansion in check. Interim DPS was lowered to 5 SGD cts from 10 last year. Management continues to see a tough operating environment.
Fuel cost-savings in coming quarters
Regional overcapacity should continue to weigh on SIA’s topline. However, we expect help from a sharp 21% YTD fall in jet-fuel prices (note). Fuel forms 38% of its opex. SIA has yet to benefit from cheaper fuel in this set of results but we expect huge benefits in the coming quarters. Clients should take positions ahead of a sharp EPS rebound in sight. Maintain BUY with TP unchanged at SGD12 (1.05x FY3/16E P/BV). No change to EPS.
We also see a prospective 39% return from a long-SIA, short-SIAEC (SELL, TP SGD3.50) trade. This trade is premised on: 1) improved aircraft reliability, which is hurting its engineering arm but allows SIA to save on maintenance, at 4% of its opex; and 2) airlines’ capacity cuts in response to the regional surplus. This should arrest slides in airline yields but translate into a smaller workload for SIAEC.
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