Analysts mixed on SIA despite strong half year performance

SIA’s forward sales show a robust demand in the coming months leading up to the Lunar New Year period in 2023.

Analysts are mixed on Singapore Airlines (SIA) although it posted strong 1HFY2023 ended September performance led by robust growth in passenger flown revenue.

OCBC Investment Research (OIR) analyst Chu Peng has maintained her “buy” call on SIA with a higher fair value estimate of $6.28 from $5.84 previously, factoring stronger recovery in passenger demand.

“SIA posted a strong 1HFY2023 result, boosted by a record revenue of $4.5 billion and operating profit of $678 million in 2QFY23. Despite inflationary pressure and higher fuel costs which caused expenditure to double in 1HFY2023, SIA’s operating income reversed from a loss of $619.4 million in 1HFY2022 to a profit of $1.2 billion in 1HFY2023, driven by stronger revenue growth.

“The bottom line is back in the black, from a loss of $836.8 million a year ago to a profit of $926.9 million in 1HFY2023,” she notes.

Meanwhile, UOB Kay Hian analyst Roy Chen has kept his “hold” call on SIA with an unchanged target price of $5.18, expecting SIA’s financial performance beyond 3QFY2023 to normalise as competition catches up and drives down yields.

In his report, Chen says that SIA’s 1HFY2023 net profit of $927 million was deemed slightly ahead of UOBKH’s projection at 50% of its full-year forecast. “The surprise was mainly from the higher interest income, due to the boost in SIA’s cash balance as a result of the strong advance sales of air tickets. In 1HFY2023, SIA benefitted from fuel hedge gain of $417 million, in line with our forecast,” he adds.

As of September, SIA has reinstated 73% and 67% of pre-Covid 19 destinations and capacity, says Chu. “Passenger capacity is expected to increase to about 76% of pre-Covid 19 levels in December and will hover around this level in March 2023. Travel demand is expected to remain strong as we head into the year-end peak travel season.”

She adds that SIA’s forward sales show a robust demand in the coming months leading up to the Lunar New Year period in 2023. OIR also sees tailwinds from the recent relaxation of border controls in parts of East Asia, with demand to pick up in Hong Kong, Taipei and Japan.

SIA’s cargo revenue fell 8.5% q-o-q to $1 billion in 2QFY2023, on the back of lower cargo load and lower cargo yields. As at end-2QFY2023, cargo load factor was 57% — already close to pre-pandemic levels, while the quarter’s cargo yield of 75.4 cents per tonne-km was significantly above the level before the pandemic, Chen highlights.

“The normalisation of cargo yields has already started and is expected to accelerate in 3QF20Y23, though we expect the exceptional passenger business performance to more than offset any weakness in the cargo performance,” he says.

Following this, Chen has raised his FY2023 earning estimate by 24.2% to $2.3 billion from $1.85 billion previously, while his FY2024-FY2025 estimates remain intact.

As at 10.57am, shares in SIA are trading 12 cents lower or 2.21% down at $5.29.

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