SIA

SIA: May operating data. Both SIA and SilkAir recorded passenger carriage growth, although the increase in traffic lagged the rate of capacity expansion, leading to declining load factors. For SIA, Europe and South West Pacific registered the highest declines in load factor. The operating environment remains challenging. Yields are expected to remain under pressure as efforts are made to boost loads, likely due to the persistent strength of the SGD against other operating currencies. Cargo traffic remains weak, sliding 5.1% yoy, more than offsetting the 3.8% capacity reduction. Consequently, cargo load factor decreased by 0.8 ppt. CIMB leaves its TP at $10.65 (pegged to trough multiple of 4.2x CY14 EV/EBITDAR), keeps Neutral rating to reflect the long term de-rating that it believes SIA is undergoing due to competition from the Middle East airlines and LCCs. The house prefers Cathay Pacific (Outperform, TP HK$17) due to its greater reliance on traffic and revenues from North America where it sees less competition.