SIA

SIA: 2QFY15 results were in-line with expectations, but cuts interim dividend to 5 cents from 10 cents last year. Revenue was almost flat at $3,905m, operating profits jumped 51.6% y/y to $131.7m on lower fuel price and capacity reduction, but profits plunged 43.4% to $90.9m, dragged by $104.0m share of losses from associates ($34.3m gain in 2QFY14) partly mitigated by + higher gains on disposal of aircraft, spares and spare engines. Associate’s losses were mostly attributable to share of Tiger Airway’s loss of $129m. Otherwise, the parent airline company recorded 42% jump in 2QFY15 operating profit to $138m on lower net fuel cost and improved cost management. Operating statistics of the parent airline company shows passenger load factor (PLF) for 2QFY15 up 0.8ppt y/y to 81.9%, (on reduced capacity and marginal increase in passenger carriage) but still below the passenger breakeven load factor of 82.6% (-0.1ppt). Monthly passenger yield has been consistently below same period last two years. For 1HFY15, the parent airline reported 2.4% y/y decline in revenue to $6,231m and 1.6% decline in operating profit to $183m. SilkAir’s operating profit fell 77% to $5m, SIAE’s operating profit declined 34% to $37m, and SIA Cargo reports smaller operating losses of $34m from last year’s $71m. SilkAir’s PLF increased 0.4ppt to 69.7% as traffic growth (+4.2% y/y) outpaced capacity injection (+3.7% y/y). SIA Cargo’s load factors improved 0.2ppt to 62.2% consequent of larger capacity reduction (-3.8%) than slowdown in airfreight carriage (-3.4%). Looking ahead, management expects the industry landscape to remain competitive and challenging amidst uncertain global economic climate and geopolitical concerns. Passenger demand is likely to be flat and yields to come under pressure, and seasonally stronger airfreight in 4Q may be dented by overcapacity. Fortunately, some reprieve may come from declining oil prices. SIA’s net asset value is $11.26, stock trades at 0.90x P/BV and 58.67x trailing P/E. Maybank-KE rates Buy with TP $12.00 among higher end of consensus. The street has 6 Buys, 10 Holds, 7 Sells and consensus TP of $10.34