Singapore Airlines (SIA) - UOB Kay Hian 2023-02-23: Time To Take Profit; 3QFY23 Headline Profit Misses Due To Forex Losses

• Singapore Airlines (SIA)’s 3QFY23 (Oct-Dec 2022) reported net profit of S$628m (+13% q-o-q) is below our expectations, with 3QFY23/9MFY23 figures forming 27%/67% of our FY23 forecast. The miss was due to a significant forex loss.
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• SIA's valuation is stretched with FY24F P/B standing at 1.9 standard deviation above historical mean. Downgrade SIA to SELL with a lower target price of S$5.35.

SIA's headline net profit missed due mainly to one-off forex losses.

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• Excluding the forex losses, SIA's 3QFY23 net profit would have been S$824m (including a fuel hedge gain of S$196m), falling within but near the lower end of our forecasted range of S$800m-1b. Revenue rose 8% q-o-q to S$4,846m in 3QFY23, driven by higher pax revenue (+14% q-o-q), partly offset by lower cargo revenue (-14.1%). See SIA's announcement dated 21 Feb 2023.
• Pax capacity and volume continued to recover; pax yields improved marginally. Pax capacity recovered to 75.1% of pre-pandemic levels in 3QFY23 (2QFY23: 67.6%) and pax volume recovered to 77.6% (2QFY23: 69.2%). SIA's 3QFY23 pax load factor was a historical high at 87.4%, driven by the upbeat air travel demand during the Oct-Dec holiday travel season against a still-limited supply.
• Pax yields increased marginally to 12.1 cents/pax-km in 3QFY23 from 11.9 cents a quarter ago.
• Cargo capacity increased but cargo volume and yields declined. In 3QFY23, SIA's cargo capacity recovered to 87% of pre-pandemic levels (2QFY23: 82.4%) driven by an increase in bellyhold cargo capacity along with the recovery of pax flights. Cargo load, however, declined q-o-q to 77.3% of pre-pandemic level (2QFY23: 82.1%) on slower cargo demand, even though the Oct-Dec quarter should have been a seasonally strong quarter.
• Driven by the increased cargo capacity but softened cargo demand, cargo yields declined 14.6% q-o-q to 64.4 cents/tonne-km in 3QFY23 (2QFY23: 75.4 cents), albeit still more than double the 30-ish level before the pandemic.
• Healthy balance sheet. SIA held a huge S$15.4b cash position as of end-Dec 22, against its total gross debts of S$16.1b (including lease liabilities of about S$3.5b-4b) and outstanding mandatory convertible bonds (MCB) amounting to S$6.6b. The abundant liquidity offers SIA flexibility to redeem the remaining MCBs early.

Forward capacity guidance.

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Roy Chen CFA UOB Kay Hian Research | https://research.uobkayhian.com/ 2023-02-23 SGinvestors.io

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