Maintain Buy despite continued slide. Singapore Airlines’ (SIA)
November load factors are showing further weakness, especially for
passenger. This is a continuation of the slide seen in October. On the
positive side, fuel prices are coming off in line with an anticipated
slowdown in global economic activity. Fuel remains the biggest swing
factor for earnings. Our valuation is unchanged at 1.2x P/BV, based on
SIA’s robust balance sheet. Maintain Buy and target price of $14.40.
Passenger traffic falls for first time. Despite a 2.2% increase in capacity, passenger load factors for November fell to 75.2% from 78.9% a year ago. On a YoY basis, traffic itself slipped by 2.6%, the largest decline this year. Load factors were also slightly below October’s 76.7% on a sequential basis. However, regional airline SilkAir continued to grow, with passenger traffic up 8.4%, versus an 11.8% increase in traffic, for a relatively healthy load factor of 79.0%.
Cargo has not deteriorated further. Cargo load factors were sustained on a YoY basis at 64.2%, but did decline sequentially as the airline’s seasonal holiday peak came to an end. Both traffic and capacity were slightly higher on a YoY basis. Overall, SIA did not see a particularly good performance during its historically busiest period.
Oil prices finally coming off. Crude oil prices are finally showing signs of weakness as a slowdown in global economic activity looms. Crude oil has declined by about 5% over the past week and jet fuel has followed suit. The current spot price of US$120.80 per barrel is below our full- year assumption of US$130 per barrel. To recap, our sensitivity analysis indicates that every US$10 decline in market jet fuel price will boost SIA’s earnings by around S$300m pa.
No change to our outlook. With operating earnings volatile and near breakeven, we retain our asset-based valuation of SIA. Our target price is unchanged at $14.40, based on 1.2x P/BV. The 2008 trough valuation was a P/BV of 0.8x, translating to an implied floor of $9.50.
Passenger traffic falls for first time. Despite a 2.2% increase in capacity, passenger load factors for November fell to 75.2% from 78.9% a year ago. On a YoY basis, traffic itself slipped by 2.6%, the largest decline this year. Load factors were also slightly below October’s 76.7% on a sequential basis. However, regional airline SilkAir continued to grow, with passenger traffic up 8.4%, versus an 11.8% increase in traffic, for a relatively healthy load factor of 79.0%.
Cargo has not deteriorated further. Cargo load factors were sustained on a YoY basis at 64.2%, but did decline sequentially as the airline’s seasonal holiday peak came to an end. Both traffic and capacity were slightly higher on a YoY basis. Overall, SIA did not see a particularly good performance during its historically busiest period.
Oil prices finally coming off. Crude oil prices are finally showing signs of weakness as a slowdown in global economic activity looms. Crude oil has declined by about 5% over the past week and jet fuel has followed suit. The current spot price of US$120.80 per barrel is below our full- year assumption of US$130 per barrel. To recap, our sensitivity analysis indicates that every US$10 decline in market jet fuel price will boost SIA’s earnings by around S$300m pa.
No change to our outlook. With operating earnings volatile and near breakeven, we retain our asset-based valuation of SIA. Our target price is unchanged at $14.40, based on 1.2x P/BV. The 2008 trough valuation was a P/BV of 0.8x, translating to an implied floor of $9.50.
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