SIA

SIA: July operating data. SIA passenger load factor ticked up 0.3 ppt y/y in Jul to 80.8% as traffic accelerated 4.4% during the traditional summer peak, faster than capacity growth of 3.9%. Load factors improved across most key markets except Americas (-1.5 ppt) and West Asia and Africa route (-5.7 ppt). The latter’s decline was due to the shift in the Ramadan period. SilkAir’s pax carriage increased 6.1% yoy against 13.4% growth in capacity, resulting in load factor dipping 4.9ppt to 70.1%, dragged also by the West Asia route. Cargo traffic remained weak, dropping a sharp 9.1% even as capacity was slashed by 6.7%, sending load factor down by 1.5 ppt to 61.5%. SIA cautioned that the operating environment remained challenging and efforts to stimulate demand to boost loads are expected to place downward pressure on yields. JPM stays Overweight with TP $13.00, says the risk-reward remains attractive. Expects the industry demand-supply growth balance to improve from 2HFY14. Believes the market tends to underestimate SIA’s potential return. Tips SIA offers c.62% upside potential to its peak valuations. If SIA pays out 1/3 of its current net cash balance or $1.28 DPS, the yield would be 13%. Alternatively, it could partially divest its stake in SIA Eng via a dividend in specie. Reducing its 78.8% stake in SIA Eng to 51% would imply an c.13% dividend yield.