Singapore Airlines’ (SIA) 1QFY17 results were largely in-line with our expectations as cheaper jet fuel continued to drive earnings despite yields being weak. 1QFY17 revenue fell 2.1% YoY to S$3.65b as parent airline recorded a 3.7% and 1.7% decline in passenger yield and carriage, respectively; but partially offset by improved performance from Scoot and SilkAir on the back of growth in operations.

SIA cargo worsened as yield fell 17.4% YoY but partly mitigated by 6.4% growth in volume. SIAEC also came in weaker but recorded one-off divestment gain less provision of S$156.7m. However, 1QFY17 operating expenses fell 4.4% YoY to S$3.46b, as net fuel cost fell 28.5% YoY on 28% drop in average fuel price and lower hedging loss, but partially offset by strengthening of USD against SGD and higher volume uplifted.

1QFY17 ex-fuel costs rose 8.3% YoY mainly due to capacity expansion at Scoot and SilkAir and impact of stronger USD. Consequently, stripping out oneoff items attributable to SIAEC, SIA’s 1QFY17 PATMI improved 9.5% YoY to S$99.9m. Pending more details from an analyst briefing, we maintain BUY rating, but place our S$12.00 FV under review.

Source: OCBC Research - 29 Jul 2016