SIA

SIA’s 2QFY14 headline net profit of $160.6m (+78% y/y, +32% q/q ) came in at the higher end of estimates, although bottom-line was largely aided by several one-off items. Revenue was at $3.9b (+3% y/y, +2% q/q), and the result brings 1HFY14 earmomgs to $282.4m (+68%). Overall Operating profit of $87m (+23%) was aided by fuel hedging gains of $52m and settlement pertaining to changes in aircraft delivery slots of $17m. Non-operating items of $9.1m for gains on aircraft and equipment sale, $3.4m for gain associated with sale of Virgin Atlantic and tax write-back of $33.1m provided further boost to bottom-line. Revenue was led by a 5% growth in passenger carriage, partially offset by a 3.5% decline in passenger yields, as promotional activities undertaken amid intense competition and the continued strength of the Singapore dollar against major revenue-generating currencies drove yields down. The parent Airline Company released operating profit of $97m (+15%), as passenger carriage (in revenue passenger KM) grew 4.9% against a 3.2% increase in capacity (in available seat-KM). As a result, passenger load factor improved by 1.3 ppt to 81.1%. SilkAir recorded operating profit of $8m (-58%), led by a 3.5 ppt drop in passenger load factor to 69%, with its 6.9% growth in traffic lagging behind capacity injection of 12.3%. Meanwhile SIA Engine recoreded an operating profit of $28m (12.5%) The cargo segment continues to be the weakest link, registering its 10th consecutive quarter of operating losses amounting to $31m (2QFY13: -$50m), as the segment reduced its capacity (in capacity ton-KM) by 5.6%, while carriage (in load ton-KM) fell 7.2%, resulting in a 1.0 ppt drop in cargo load factor to 61.5%. Going forward, SIA guides that the operating landscape remains challenging, and while advance bookings for the coming months are projected to be higher, ongoing promotional activities and a strong SGD are expected to place pressure on yields. Cargo demand is expected to remain flat due to weak international trade volumes and excess capacity in the market, and yields are therefore likely to remain under pressure. On the cost side, fuel prices are likely to remain high and volatile. Against this challenging backdrop, the group will continue to monitor market conditions closely and respond appropriately, while maintaining vigilance in cost management. At the current price, SIA trades at 0.9x P/B. Latest broker ratings as follows: Maybank-KE maintains Hold with TP $10.30 CIMB maintains Neutral with TP $10.50 CS downgrades to Neutral with TP $11.30 (prev $12.50) UOB Kay Hian maintains Hold with TP $11.50 Deutsche maintains Sell with TP $8.80