• 1HFY19 operating profit 47% of full year
• Interim div of S$0.08/share
• 58% of fuel hedged for 2HFY19

2QFY19 Results Impacted by Virgin AU

Singapore Airlines (SIA) reported a 5.6% YoY rise in revenue to S$4.1b in 2QFY19 and net profit of S$56.4m, impacted by S$117.1m share of losses of associated companies. This was mainly due to the recognition of SIA’s share of loss from Virgin Australia, which we had highlighted in our earlier report on 17 Oct.

1HFY19 revenue and operating profit were 49% and 47% of our full year estimates, within expectations. Operating profit was 44% YoY lower, but if one-off items were to be excluded, it would be 27% lower, mainly due to higher fuel costs.

Encouraging Performance From Passenger Flown Revenue

Flown revenue rose by S$422m, contributed by passenger flown revenue (+S$346m or +5.8%) and cargo flown revenue (S$76m or +7.4%). Passenger flown revenue was lifted by an 8.8% increase in traffic, outpacing growth in capacity of 5.4%, driving passenger load factor to rise 2.6% points to 83.6%. Passenger unit revenue (in revenue per available seat-km) grew 1.3% as transformation efforts yielded positive results.

58% of Fuel Hedged for 2HFY19; 52% for FY20

Bookings in the coming months are expected to be stronger YoY, but headwinds continue to persist in the form of cost pressures arising from elevated fuel prices and keen competition. For 2HFY19, SIA has hedged 58% of its fuel requirements in MOPS (jet fuel) at a weighted average price of US$71, against the current MOPS price of US$87. For FY20, 52% is hedged with 17% at US$79 on average for jet fuel) and 35% at US$56 on average for Brent.

Interim Dividend of S$0.08/share

Looking ahead, the projected capacity growth (in ASK) for FY19 vs. FY18 is 5% for SIA, 4% for SilkAir, 16% for Scoot and 7% for the whole group. For cargo, it is expected to be flat (in CTK). The group has declared an interim dividend of S$0.08/share, compared to S$0.10/share a year ago, which is not a surprise to us – our FY19 dividend forecast remains at S$0.30 compared to S$0.40 in FY18.

Meanwhile, valuations remain low at about 0.85x forward P/B. We maintain our FV estimate of S$10.71.

Source: OCBC Research - 15 Nov 2018