Maintain HOLD, TP: SGD10.30. While we were positively surprised by the headline numbers for the quarter, closer scrutiny suggests that the strong performance was mainly due to one-off items. Despite cheap valuation on the stock, we remain cautious in our recommendation and believe that there is little scope for re-rating. Maintain Hold with TP of SGD10.30 (P/B peg of 0.9X FY14E).

Headline numbers flattered performance. SIA reported a very strong set of results with net income of SGD122mn (+78% QoQ, +56% YoY). However, we wish to highlight that headline figures were flattered by exceptional gains of SGD18.4mn (gain on sale of Virgin Atlantic: +SGD335.8mn; Impairment of freighters: -SGD293.4mn; Impairment of PPE of Singapore Flying College: -SGD24.0mn) and surplus on disposal of assets of SGD13.9mn. Furthermore, settlement pertaining to changes in aircraft delivery slots had boosted revenue by SGD75mn.

Yields at parent company remain under pressure. The parent company’s passenger yields declined for the sixth consecutive quarter to 11.1cents (-2.6% YoY). Despite having a negative breakeven load factor spread of 4.0%, the parent company managed to report operating profit of SGD89mn (likely due to the settlement revenue of SGD75mn).

Poor load factor; Better yields for SilkAir. There is also little to cheer for SilkAir as the marked improvement in passenger yield (14.1cents; +3.7% YoY) was achieved under very poor load factor of 69.6%.

Cargo market shows no signs of improvement. SIA Cargo reported the ninth consecutive quarter of losses with decline in traffic (-5.3% YoY) and yield (5.5% YoY). With no signs of improvement in the air freight market, SIA took an impairment charge of SGD293.4mn on four surplus freighters and have marked them for sale.

Source: Maybank Kim Eng Research - 26 Jul 2013