Singapore Airlines’ (SIA) 2QFY17 revenue fell 5.1% YoY to S$3.65b as its parent airline recorded a 3.8% and 4.6% decline in passenger yield and carriage, respectively. With a 21.9% YoY decline in 2QFY17 net fuel cost, SIA’s operating expenses fell 4.7% YoY to S$3.54b. Consequently, group operating profit declined 15.5% YoY to S$109.1m. Stripping out one-off impairment charge of S$20.8m for Scoot 777- 200 aircraft, SIA’s 2QFY17 core PATMI fell 25.2% YoY to S$85.7m.

For 1HFY17, revenue declined 3.6% YoY to S$7.31b as downward pressure on yields persisted while operating expenses fell 4.6% YoY to S$7.0b mainly on lower net fuel cost arising from a 21% drop in average jet fuel price and lower hedging loss, but partially offset by higher volume uplifted. Consequently, stripping out one-off items, SIA’s 1HFY17 core PATMI missed our expectations, as it plunged 39.9% YoY to S$123.7m, and formed 28% of our FY17 forecast.

Pending more details from an analyst briefing, we maintain our HOLD rating, but place our S$10.80 FV under review. We also note that SIA has cut its interim dividend from 10.0 S-cent in 2QFY16 to 9.0 S-cent in 2QFY17.

Source: OCBC Research - 4 Nov 2016