• SIA’s FY22 (Apr 2021 to Mar 2022) revenue of S$7,615m and net loss of S$962m were in line with our forecasts. There are signs that SIA’s recovery trajectory is steeper than we previously expected.
• We now expect SIA to turn in an exceptionally strong FY23 net profit of S$1.35b, driven by strong pax volume, strong pax yields and a fuel hedge gain of over S$1b.
• Despite strong near-term earnings outlook, valuation is stretched. Maintain HOLD.

SIA's FY22 Results in Line

• Singapore Airlines (SIA, SGX:C6L)’s FY22 revenue of S$7,615m and net loss of S$962m are in line with our expectations, at 100% and 99% of our forecasts respectively. Revenue growth was contributed by all segments: passenger flown revenue rose 310% y-o-y to S$2,806m in FY22 and cargo revenue rose 60% y-o-y to S$4,339m.
• Net loss narrowed significantly to S$962m in FY22, from S$4,270m in net losses in FY21, driven by:
  1. improving operating performance,
  2. absence of major impairment charges (impairment charges collectively amounted to about S$2b in FY21), and
  3. a fuel hedge gain of S$297m in FY22 vs a hedge loss of S$548m in FY21.
• Excluding non-recurring gains/losses, SIA would have registered a net loss of S$1,186m in FY22 (FY21: S$1,693m net loss).

Upbeat Apr 22 Operation Data Pointing to Faster-than-expected Recovery

• SIA’s recently released Apr 22 operation data was stronger than our expectations. While the pace of recovery in pax capacity (at 57% of pre-pandemic level in Apr 22) was well-guided by SIA, the key surprise came from the magnitude of improvement in pax load factor (LF). The Apr 22 actual pax LF of 72.7% (+18.2ppt m-o-m) was already ahead of our FY23 full-year pax LF projection of 68.3%, pointing to a recovery trajectory that is steeper than we previously expected.

Strong Pax Yield in Next Few Quarters

• The recent border measure relaxations in Singapore have unlocked significant pent-up demand for air travel. The immediate lift in demand for air tickets has outpaced the near-term ramp-up in seat supply, leading to generally higher air ticket prices than pre-pandemic days.
• According to management, seats of SIA are well booked in the next few months till August. We believe the bookings are on strong pricing points and will translate to strong pax yield in the next few quarters.

MCB Redemption Likely Earlier Than Expected, in FY23/24

• In our SIA initiation report Singapore Airlines - UOB Kay Hian 2022-03-28: Recovery On Track, MCB Redemption A Priority, we noted that the redemption of end-22 gross cash balance of S$13.76b).

Expecting exceptionally strong FY23

• We have revised our FY23-25 net profit forecasts for SIA upward
• FY23 earnings have seen the biggest

Source: UOB Kay Hian Research - 20 May 2022