Singapore Airlines Limited’s (SIA) 2QFY15 earnings came in above our conservative expectation, as we believe the overcapacity problem in the industry will continue to put a pressure on yields as well as the large Tiger Airways 2QFY15 losses expected to make a significant impact. SIA’s 2QFY15 revenue was almost flat YoY at S$3.9b while operating profit jumped 51.7% YoY to S$131.7m. However, its 2QFY15 PATMI dropped 43.4% YoY to S$90.9m.

For 1HFY15, SIA’s revenue was in line with our expectation while PATMI came in above expectation as they formed 50% and 62.5% of our FY15 projections. 1HFY15 group revenue declined 2.0% YoY to S$7.6b mainly on the back of lower aircraft lease income as leases to Royal Brunei Airlines expired.

While SIA’s 1HFY15 operating profit gained 1.5% Yoy to S$171.2m, its PATMI plunged 55.5% to S$125.7m largely contributed by the losses from its associate, Tiger Airways, for which SIA has a 40% equity stake in. We will be speaking with management later today to get more clarity. Hence, we maintain our HOLD rating but put our FV of S$10.05 under review.

Source: OCBC Research - 7 Nov 2014