Maintain HOLD, TP: SGD10.30. SIA reported a decent set of results with net income of SGD160.6m (+78 YoY, +32% QoQ). Considering the challenging operating environment, we find this performance commendable. However, 2QFY03/14 bottom-line was boosted by several one-off items, and the underlying trends remained weak. With improved profitability, the company declared marginally higher interim dividend of 10.0 cents/shr (vs FY03/13 interim: 6.0 cents). The depressed valuation reflects the tough business conditions and a meaningful near-term re-rating would be challenging. Its net cash position of SGD3.60/shr should support share price. Maintain Hold with a TP of SGD10.30, based on 0.9X FY14 BVPS.

Lifted by one-off items. The strong operating profit of SGD87m in 2QFY03/14 (1QFY03/14: SGD82m, 2QFY03/13: SGD70m), helped by fuel hedging gain of SGD52m and settlement pertaining to changes in aircraft delivery slots of SGD17m. Non-operating items of SGD9.1m for gains on aircraft and equipment sale, SGD3.4m for gain associated with sale of Virgin Atlantic and tax write-back of SGD33.1m provided further boost to its bottom-line.

Declining yield offset high load factor at parent airline. The parent airline reported a load factor of 81.1%, one of its strongest in recent quarters. While positive, this was offset by the continued decline in passenger yields to 11.0 cents (-3.5% YoY, -0.9% QoQ) due to promotional activities and relative strength of the SGD.

Smaller losses at Cargo unit; aggressive expansion weighs on loads at SilkAir. Business conditions remained challenging for the cargo operations, which chalked up their tenth consecutive quarterly loss. However, rationalization of capacity has helped to reduce the quarterly operating loss to SGD31m (1QFY03/14: -SGD40m, 2QFY03/13: -SGD50m). The aggressive expansion by SilkAir over the past year continued to weigh on its load factor, leading to operating profit of only SGD8m this quarter.  

Source: Maybank Kim Eng Research - 13 Nov 2013