SIA earnings preview

SIA earnings preview: UOB Kay Hian expects a peak quarter but earnings will have minimal impact. 3Q13 is a peak quarter for SIA and thus, project a sequential improvement in earnings, brought about by higher pax yields (+0.4 cents to 11.7 cents) and lower cargo losses. House also expect SIA to book an exceptional gain of $322m from the sale of Virgin Atlantic. Case for special dividends. The market has been hopeful of a potential special dividend from SIA following the divestment of Virgin Atlantic. The airline is in the midst of extensive cost rationalization, faces renewed challenges from Middle Eastern carriers and will also see capex commitments rise sharply. As such, do not expect any significant dividend payout for FY13. SIA’s div payout as a % of recurring FCF (inclusive of dividends from associates) has been declining steadily since FY11. See the decline continuing into FY13 and have assumed a total payout of 20 cents, or a final payout of 10 cents. Overall, maintain SELL and TP of $10.70, valuing the stock at 0.75x forward book value (ex-SIAEC) and adjusting for its fair value stake in SIA Engineering..