SIA

SIA: Registered 1Q14 results which was in-line with estimates, with core net profit at $103m (+33% y/y). Including exceptional, reported net profit came in at $122m (+56%), due to the result of a $336m gain via the disposal of Virgin Atlantic to Delta Air Line and a $317m impairment charges on freighters and property, plant & equipment. Revenue at $3.84b (+2% y/y) was aided by $75m recognized from settlement pertaining to changes in aircraft delivery slots, baring which Passenger revenue improved marginally, with a 2% growth in passenger carriage, but this was offset by weaker yields. Intense competition and unfavorable foreign exchange rates also depressed yields down by 2.6%. Cargo revenue was affected by lower loads (-5.3%) and yields (-5.5%) signaling overcapacity. SIA parent airline’s saw operating profit at $89m (+5%), although yield for 1Q14 dipped to 11.1c/pkm (1Q13: 11.4¢) and passenger load factor fell to 78% (1Q13: 79.5%) versus breakeven load factor at 82%, highlighting a decline in y/y operating stats on back of increased competition. SilkAir registered an operating profit of $14m (-22% y/y). While yields rose to 14.1¢/pkm (1Q13: 13.6¢), passenger load factor fell to 69.6% (1Q13: 76.4%) an inch above the breakeven load factor at 69.5%. The Cargo segment continues to be the weakest link, registering an operating loss of $40m (1Q13: -$49m), as total cargo yields declined further to 84.3¢/ltk (1Q13: 85.1¢/ltk) and load factor at 68.8% (1H13: 68.4%) below the overall breakeven load factor of 72.2%. This has resulted in SIA removing four Cargo freighter aircrafts from its service. Going forward, management maintains a cautious outlook, and guides for weaker yields ahead in all segments, which will likely be offset by higher passenger traffic from capacity expansion. It also expects weak load factors on the cargo business due to low demand. Analyst briefing is at 10 am this morning. UOB Kay Hian maintains Hold with $11.50 TP Deutsche maintains Sell with $9.40 TP Nomura neutral with $11.10 TP