SIA

SIA: Announced 3Q11 results which were below estimates. Rev at $3.9m, +2.6% yoy and -2.1% qoq, while net profit at $135.2m, -53.1% yoy and -30.4% qoq. Operating margins slumped to 4.1% vs 13.3% yoy.

Poor results was attributed largely to persistently high jet fuel prices which rose 35.2% yoy at 1.5b, as fuel prices increasesd 30% over the same period. Fuel accounted for 40% of grp’s total expenditure. Although Grp rev’s slight improvement was on the back of marginal growth in passenger carriage.

Meanwhile, operating results of the main Co’s in Grp namely, SIA Engineering, SilkAir and SIA Cargo all registered operating profits which were lower yoy. (Passenger S$137m, Cargo S$40m loss, SIA Eng S$28m, SilkAir S$32m) Ongoing initiatives in cost mgt and efficiency helped to keep other cost items in check, with passenger unit cost excluding fuel down by 9%.

Number of passengers carried by SIA in 3Q12 at 4.4m, - 0.3% yoy, while passenger carriage was flat while capacity grew 3.3%. Consequently, passenger load factor declined 2.5 ppt to 77.2%. On the other hand, passenger breakeven load factor climbed 4.9 ppt to 76%, as unit cost +7.0% while yields remained flat.

Going forward, mgt cautions that forward bookings remains weak for 4Q12, due to uncertainty in the global economy and the EU crisis. Similarly, air cargo mkt remains weak as indicators such as PMI slide further alongside weak consumer demand in major developed economies. Passenger yields expected to remain under pressure while cargo yields expected to decline. Amidst these challenges, Grp will continue to seek out rev opportunities and exercise flexibility in aligning capacity deployment to mkt.

We note that overall grp’s balance sheet remains strong with a net cash position of $3.5b, while at current price, valuation appears fair in light of a global slow-down among the premium airliners, with SIA trading at 1x P/B vs historical average of 1.1x and at a 29% discount to STI’s P/B, near the -1SD range.

Ratings as follow:
CIMB maintains neutral with $11.00 TP.
Citi maintains Sell with $10.40 TP.
DBSV maintains Hold with $11.00 TP.
Deutsche maintains Hold with $10.80 TP.
HSBC maintains O.w with $12.50 TP.
JP Morgan O/w with $14.00 TP.
UBS neutral with $11.00 TP.
UOB Kay Hian maintains Hold with $10.90 TP