After today’s 3QFY12 results briefing with Singapore Airlines’ (SIA) management, we learned there is a current overall weakness in advance passenger bookings and the weakness cannot be solely attributed to premium or economy seats. Geographically, demand seems especially weak in flights to Europe. In the air cargo segment, management attributed SIA Cargo’s operating loss of S$40m to the usual peak shipping season that failed to materialise in 3QFY12. Despite pockets of strength in global purchasing manager indices, management provided a gloomy outlook for its air cargo business and guided cargo yields to continue falling in the current quarter. We maintain our fair value estimate of S$10.85/share, which has already factored in the challenging times the aviation sector is currently facing, and HOLD rating on SIA.
Weak advance passenger bookings. After today’s 3QFY12 results briefing with Singapore Airlines’ (SIA) management, we learned there is a current overall weakness in advance passenger bookings and the weakness cannot be solely attributed to premium or economy seats. Geographically, demand seems especially weak in flights to Europe. Management reckons SIA’s bigger exposure to premium seats makes its products less price elastic. However, recent cuts in corporate spending have downsized corporate air travel. Thus, SIA expects passenger yields to remain under pressure in 4QFY12.
Cargo segment has gloomy outlook. In the air cargo segment, management attributed SIA Cargo’s operating loss of S$40m to the usual peak shipping season that failed to materialise in 3QFY12. This lack of a peak season is similar to the one experienced in sea freight. Despite pockets of strength in global purchasing manager indices, management provided a gloomy outlook for its air cargo business and guided cargo yields to continue falling in the current quarter.
New PATMI estimate still below consensus. Post today’s results briefing, we have increased our revenue and PATMI estimates for SIA in FY12 to S$14.7b and S$404m respectively. Our new FY12 revenue estimate is in-line with consensus but our new FY12 PATMI estimate is 23% lower than consensus. We reckon 4QFY12 will still be a tough quarter for SIA because jet fuel prices so far in this quarter have stubbornly remained high and are even averaging slightly higher QoQ.
Maintain HOLD and fair value. We maintain our fair value estimate of S$10.85/share, based on an adjusted ex-net cash P/B multiple of 1x and has already factored in the challenging times the aviation sector is currently facing, andHOLD rating on SIA.
Cargo segment has gloomy outlook. In the air cargo segment, management attributed SIA Cargo’s operating loss of S$40m to the usual peak shipping season that failed to materialise in 3QFY12. This lack of a peak season is similar to the one experienced in sea freight. Despite pockets of strength in global purchasing manager indices, management provided a gloomy outlook for its air cargo business and guided cargo yields to continue falling in the current quarter.
New PATMI estimate still below consensus. Post today’s results briefing, we have increased our revenue and PATMI estimates for SIA in FY12 to S$14.7b and S$404m respectively. Our new FY12 revenue estimate is in-line with consensus but our new FY12 PATMI estimate is 23% lower than consensus. We reckon 4QFY12 will still be a tough quarter for SIA because jet fuel prices so far in this quarter have stubbornly remained high and are even averaging slightly higher QoQ.
Maintain HOLD and fair value. We maintain our fair value estimate of S$10.85/share, based on an adjusted ex-net cash P/B multiple of 1x and has already factored in the challenging times the aviation sector is currently facing, andHOLD rating on SIA.
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