February 3, 2012

Singapore Airlines

OCBC Research on 3 Feb 2012


Singapore Airlines (SIA) last night reported its 3QFY12 revenue grew 1% YoY to S$3.9b but PATMI fell 53% YoY to S$135m. Persistently high jet fuel prices caused SIA’s fuel costs to jump 35% YoY to S$1.5b. All of SIA’s business segments contributed lower operating profits from a year ago. The parent airline (Singapore Airlines) recorded an operating profit of S$137m, from S$378m a year ago. SIA Engineering’s operating profit shrank 18% YoY to S$28m, while SilkAir’s operating profit decreased 29% YoY to S$32m. SIA Cargo reported an operating loss of S$40m, swinging from an operating profit of S$48m in 3QFY11. Pending today’s briefing with management, we put our fair value estimate of S$10.85/share and Hold rating on SIA UNDER REVIEW.

Revenue edged 1% ahead but PATMI fell 53% in 3QFY12. Driven by a marginal growth in passenger revenue, Singapore Airlines’ (SIA) eked out a 1% growth in 3QFY12 to record revenue of S$3.9b. Persistently high jet fuel prices, which we have mentioned numerous times in our earlier reports, were a big factor that caused its PATMI to fall 53% YoY to S$135m. Fuel costs jumped 35% YoY to S$1.5b, driven by jet fuel prices that were 30% higher.

All segments’ profitability worsened. In 3QFY12, all of SIA’s business segments contributed lower operating profits from a year ago. In 3QFY12, the parent airline (Singapore Airlines) recorded an operating profit of S$137m, versus S$378m a year ago. SIA Engineering’s (SIAEC) operating profit shrank 18% YoY to S$28m, while SilkAir’s operating profit decreased 29% to S$32m. SIA Cargo reported an operating loss of S$40m, swinging from an operating profit of S$48m in 3QFY11.

FY12 PATMI likely to miss consensus estimate. For 9MFY12, SIA recorded revenue of S$11.2b and PATMI of S$374m, representing 76% and 72% of consensus FY12 revenue and PATMI estimates respectively. SIA’s FY12 PATMI will likely miss consensus FY12 estimate, unless it goes on to record a blockbuster quarter in 4QFY12. But given the gloomy outlook management has painted for the rest of FY12, a miss is more likely than not. Management said the uncertain global economy has caused weakness in advance passenger bookings. In addition, purchasing manager indices across the globe have slid further, resulting in a weak air cargo market. Thus, passenger yields are expected to remain under pressure and cargo yields are to continue falling. To exacerbate matters, jet fuel prices have stubbornly remained high. Thus, we expect another round of FY12 PATMI estimates downgrade by the street.

Rating under review. Pending today’s earnings briefing with management, we put our fair value estimate of S$10.85/share and Hold rating on SIA UNDER REVIEW.

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