Singapore Airlines

Singapore Airlines: 3QFY15 core net income disappointed slightly, rising 12.6% to $146.4m (+12.6% y/y). Essentially, the quarterly performance was dampened by higher priced fuel hedges.
In the quarter, SIA’s unit jet fuel prices only fell 1.9% y/y, while market prices fell 26.2% in the same period, as fuel was hedged higher (65% of usage at US$116/bbl).

Otherwise, stated net profit rose 230% to $202.6m, primarily driven by the consolidation of Tigerair, and $56m exceptional gain. This compares to an $80m one-off loss last year.

The exceptional gains are from $120 remeasurement from Tigerair upon being a subsidiary, $64m impairment loss on SIA Cargo’s investment in China Cargo Airlines from excess capacity.
Revenue rose 5.8% to $4.1b, though there was a 0.6% dip in traffic, as yields went up 2.7%.

Operationally, the parent airline’s passenger load factor (PLF) fell 1.1ppt to 78.3%, as decline in carriage (-1.9%) outpaced the drop in capacity (-0.5%).

Otherwise, subsidiary airlines, SilkAir, SIA Cargo and to a lesser extent, Tigerair showed improved performance.

For SilkAir, PLF rose 2.2ppt to 72.2%, as the 7.6% growth in carriage outpaced the 4.4% capacity increased. SIA’s freight carriage fell 0.9%, while capacity declined 3.3%, leading to PLF rising 1.6ppt to 65.1%.

Management does guide that though lower oil prices are usually positive for the airline industry, hedging and competition will limit the effect of its earnings. Particularly, if falling oil prices are a manifestation of a global slowdown, there may be a negative effect on air travel demand. Nevertheless, advanced passenger bookings for the Jan-Mar quarter are positive, largely due to the CNY demand.

SIA is trading at 1.16x P/B.

Latest broker ratings:
Maybank KE maintains Buy with TP $12.00
JP Morgan maintains Overweight with TP $13.50
Morgan Stanley maintains Overweight at TP $16.43
Goldman Sachs maintains Neutral with TP $9.60
Deutsche Bank maintains Hold with TP $11.30