• 2QFY15 PATMI plunged 43.4% YoY
• Limited effects on recent oil prices’ drop
• Increase FV; maintain HOLD

2QFY15 PATMI affected by Tiger Airways’ losses

Singapore Airlines Limited’s (SIA) 2QFY15 revenue was almost flat YoY at S$3.9b while operating profit (OP) 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 as well as a 1.8% decline on overall passenger yields. While SIA’s 1HFY15 OP 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, which was expected.

Breakdown of segmental performance

Parent airline’s 1HFY15 OP fell 1.6% YoY to S$183m on lower revenue and a 0.9% decline in passenger yield, partly due to weaker AUD and JPY. With intense competition from regional LCCs, Silkair’s 1HFY15 OP dropped 77.3% to S$5m as passenger yield declined 5%. SIA Cargo saw 1.9% and 0.2 ppt improvements to 1HFY15 yields and load factor, respectively, which led to 52.1% reduction in operating loss to S$34m. SIAEC saw a 34.3% decrease in OP mainly due to fewer heavy checks as more airlines defer workshop visits.

Outlook remains challenging although oil prices decline to help

We think yield will continue to be under pressure from intense competition while we think demand to remain muted, especially in the Southeast Asia region. However, management guided SIA Cargo should see improvements for 3QFY15 being the holiday season. Although we expect to see lower oil prices to improve profitability in 3QFY15, we think the extent on savings will be limited as SIA is already 65.3% hedged for 2HFY15.

Increase FV; maintain HOLD

We adjust upwards our conservative projections for FY15 and FY16 PATMI by 49.6% and 27.4% respectively on lower jet fuel costs and better performance from SIA Cargo. Hence, we increase our fair value estimate from S$10.05 to S$10.12. Maintain HOLD.

Source: OCBC Research - 10 Nov 2014