■ 2QFY16 results on 5 Nov. Expect core net PATAMI of SGD169m (+197% YoY, +85% QoQ).
■ Cut FY16-18 EPS by 9-11% after imputing revised lower traffic growth & the latest jet-fuel & USD/SGD assumptions.
■ Downgrade to HOLD from BUY due to limited upside and no immediate catalyst. TP marginally lowered to SGD11.80.
We downgrade the share in light of persistent soft yield environment and management’s plans to taper down future growth capacity plans. Otherwise, 2QFY16 operating statistics were in line with our expectations. System traffic growth rose 11.2% YoY and load factor, 1.9ppt YoY to 70.8%. This was its highest load factor since 2002.
What’s Our View
Load factor is impressive, but this came at the expense of lower yields as competitors cut prices to gain market share and loads. SIA has to reciprocate by dropping its fares but is saddled with expensive fuel hedges: 55% of its fuel in 2QFY16 had been fixed at USD104/bbl vs an average market price of USD66/bbl.
We cut FY16-18 EPS by 11.4%/8.5%/10.5% after filtering revenue generated from aircraft slot trades which we deem non-recurring. We also adjust capacity-growth assumptions based on management’s inputs and our yield, jet-fuel and USD/SGD assumptions.
Downgrade to HOLD from BUY with a lower TP of SGD11.80 from SGD11.85, after revising earnings. Our fair value is based on an unchanged 1.0x FY17 P/BV, its 10-year mean. (Read Report)