Singapore Airlines (SIA) reported its 3QFY15 results last Friday, which consolidated Tigerair’s results with effect from Oct-14, after Tigerair’s rights issue increased SIA’s stake from 40.0% to 55.8%. Excluding Tigerair to make comparison meaningful, SIA’s 3QFY15 revenue grew 1% YoY to S$3.9b on higher passenger revenue as yields saw an 2.7% increase. Average jet fuel for 3QFY15 was 19.6% lower YoY but due to hedging loss of S$216m, average jet fuel price after hedging declined by only 1.9%.

However, this decline was then offset by the stronger USD against SGD, which resulted in a net 0.6% YoY increase in fuel costs to S$1.4b. The 1.7% YoY growth in other expenses excluding fuel costs to S$2.4b was also largely due to the strengthening of USD against the SGD.

As a result, total group expenditure increased 1.3% YoY to S$3.8b. Consequently, 3QFY15 operating profit saw a 5.3% drop to S$143m. However, 3QFY15 Core PATMI increased 12.6% YoY to S$146.4m, as share of profits from associated and JV companies turned positive from a year ago.

Excluding exceptional items, SIA’s 9MFY15 core PATMI of S$282.2m formed ~78.8% of consensus FY15 forecasts. Pending further details from management later in the morning, we maintain HOLD, but put our FV of S$10.80 under review.

Source: OCBC Research - 9 Feb 2015