Singapore Airlines (SIA) - CGS-CIMB Research 2022-10-26: Good 2Q Results Likely; Partial MCB Redemption

Singapore Airlines (SIA) - Good 2Q Results Likely; Partial MCB Redemption

  • SIA announced on 25 Oct 2022 that it will redeem the whole of the first tranche of its Mandatory Convertible Bonds (MCB) with a face value of S$3.5bn on 8 Dec 2022; the cash outflow will be S$3.9bn after including the 4% p.a. yield over the five half-year periods since issue date on 8 Jun 2020. SIA has a second S$6.2bn tranche of MCBs issued on 24 Jun 2021, which remains unredeemed.
  • SIA is partially redeeming the MCBs because it has ample cash. As at 30 Jun 2022, SIA had S$16.1bn gross cash balance and a small net cash position after deducting debt of S$15.7bn. During the Jun 2022 quarter alone, SIA increased its gross cash balance by S$2.3bn due to the ramp-up in operations and the monies from forward sales; we expect even more interest-free forward sale monies in the Sep and Dec 2022 quarters.
  • In terms of our valuation, we are using adjusted book value assuming that half of the MCBs will be redeemed. This assumption still stands, as the total face value of MCBs issued is S$9.7bn and half is S$4.85bn; so far SIA has announced redemption of S$3.5bn. For now we do not expect SIA to redeem more than half, because of
    1. heavy capex commitments in future years (mainly for aircraft delivery);
    2. potential reduction in operating cashflow generation beyond FY23F due to possible slowdown in air cargo markets and rising competition in the passenger aviation business as competitors reinstate flights;
    3. our forecast of rising net debt levels for SIA in future years; and
    4. the necessity for SIA to keep a higher gross cash balance due to heightened business risks.
  • We expect SIA's 2QFY23 (Jul-Sep 2022) profit to be higher than 1QFY23, on the back of F1 and MICE-related inbound travel, outbound travel by Singapore residents, and limited competition from other hub carriers like Cathay Pacific. SIA’s 2Q ASK capacity recovered to 71% of the 2019 base (from 66% in 1Q); 2Q RPK demand was 22% higher q-o-q, with PLF at 86.6% (vs. 1Q’s 79%). Also, jet fuel prices average US$129/bbl in 2Q, down 9% q-o-q from US$142/bbl in the 1Q.
  • The outlook for SIA's 3QFY23F (Oct-Dec 2022) also looks good; SIA earlier guided that its Dec 2022 ASK capacity will be restored to 81-82% of its pre-COVID base, and we expect SIA’s 3QFY23F ASK capacity to rise 13% q-o-q. Jet fuel prices fell further to US$119/bbl yesterday.
  • We expect the likely strong 2QFY23F results, which will be released on 4 Nov 2022, to be the key re-rating catalyst for SIA's share price.

Above is the excerpt from research report by CGS-CIMB.
Clients of CGS-CIMB may access the full report in PDF @

Raymond YAP CFA CGS-CIMB Research | 2022-10-26

Read also CGS-CIMB's most recent report:
2023-01-16 Singapore Airlines (SIA) - Time To Pocket Share Price Gains.

Previous report by CGS-CIMB:
2022-12-06 Singapore Airlines - Merger Of Vistara & Air India ~ Better Than Standing Alone.

Price targets by 3 other brokers at SIA Target Prices.
Listing of research reports at SIA Analyst Reports.

Relevant links:
SIA Share Price History,
SIA Announcements,
SIA Dividends & Corporate Actions,
SIA News Articles

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