UOBKayhian on 23 Feb 2015
FY15F PE (x): 14.2
FY16F PE (x): 14.8
SIA's Jan-15 pax traffic growth was lowest since 2013, but could be due to a later
Chinese New Year (CNY) in 2015. SIA stated that the decline in pax traffic was due to
seasonal factors. Still, the decline in load factors was quite telling, with the Americas
and Europe declining by 8.6ppt and 3.5 ppt respectively. Load factor for Europe and the
Americas have been declining since Jun 14 and Oct 14 respectively suggesting that
increased competition is a key factor behind the decline in load factor and possibly even
traffic.
Decline in pax traffic is seen as an anomaly, sustainability of yields is a greater concern.
Pax yields in 3QFY15 improved 2.7% and was the highest in 2.5 years. Given the spate
of airline disasters in the region, there is a possibility that passengers on regional travel
might gravitate towards SIA. This is not yet evident in SIA’s January numbers but fares
could have increased on select routes. Thus there is a possibility that yields could
remain strong in 4QFY15. The downside to this, is weakness out of Europe and
increased competition from Middle Eastern carriers.
Maintain HOLD on SIA. We have forecast ROE to improve threefold for FY16 and
dividend to rise by 160% based on similar payout. Based on that, SIA would offer a
dividend yield of 4.5%, which is reason enough to own the stock. We raise our
suggested entry level from S$11.30 to S$11.70 to reflect the attractive yield.
Comparatively, we still prefer Cathay Pacific (293 HK, BUY, Target HK$19.00) due to
stronger traffic growth and cargo growth and prospects for improved cargo yield.
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