R e g i o n a l
M o r n i n g
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Wednesday, 31 January 2018
BUY (Maintained)
COMPANY UPDATE
Singapore Airlines (SIA SP)
3QFY18 Results Preview: Expect Core Earnings To Rise 27% yoy, Underpinned Share Price Target Price By Strong Performances From Parent Airline And Cargo SIA will report 3QFY18 results on 13 February. We estimate net profit to rise 74% yoy on the back of stronger load factors for the group. Cargo operation is expected to generate the highest profit in 10 years. However, its airline subsidiaries are expected to generate lower earnings on weak pricing power amid higher fuel prices. Maintain BUY. Target price: S$11.90. WHAT’S NEW 3QFY18 RESULTS PREVIEW 3QFY18 226.0
yoy % chg 49.5
SIA Cargo Op Profit
67.2
26.8
Other Subsidiaries Op Profit
64.6
(27.2)
357.8 (16.7) 341.1 9.9 308.4 308.4
22.1 (74.8) 50.5 n.m. 74.0 26.6
Year to 31 Mar (S$m) Parent Airline Op Profit
Total Op Profit Non-Operating Profit PBT MI Net Profit Net Profit (Ex-EI)
S$11.45 S$11.90 +3.9%
Upside
COMPANY DESCRIPTION Singapore Airlines is Singapore's flag carrier, flying to more than 60 destinations in over 30 countries. Traveller’s World Magazine nominated SIA as Best Airline for the sixth consecutive year in 2016.
STOCK DATA Remarks Assumes flat pax yield with a 3ppt increase in load factor Assumes yields to grow 5.1ppt as load factor increases by 4ppt Assumes 5.6% decline in yields with a 4% increase in unit cost for SilkAir
GICS sector Bloomberg ticker: Shares issued (m): Market cap (S$m):
Industrials SIA SP 1,182.5 13,540.0
S$79m in impairment of intangible assets in 3QFY17.
Price Performance (%)
Market cap (US$m): 3-mth avg daily t'over (US$m):
10,313.0 11.1
52-week high/low
1mth 7.3
Excludes S$79m impairment
S$11.49/S$9.72
3mth
6mth
1yr
YTD
11.7
11.4
14.0
7.3
Major Shareholders
Source: SIA, UOB Kay Hian
%
Temasek Hldgs
55.7
• We expect Singapore Airlines’ (SIA) 3QFY18 headline net profit to rise 74% yoy and FY18 NAV/Share (S$) core net profit to rise 26.6% yoy, underpinned by higher profits from parent airline and FY18 Net Debt/Share (S$) SIA Cargo. In 3QFY18, pax loads increased 3% yoy for the parent airline as traffic growth continued to outpace capacity due to stronger passenger demand during the year-end PRICE CHART peak period. The growth in profit would be partially driven by SIA’s “efforts to stabilise (lcy) yields”, as every 0.1 cent rise from our base yield assumption of 10.40 cents is expected 12.00 to improve 3QFY18 PBT and net profit by 7.2% and 6.9% respectively. In comparison, 11.50 Taiwanese carriers reported yield growth of up to 4-6ppt over the same period. 11.00 SINGAPORE AIRLINES LTD
11.72 1.34
SINGAPORE AIRLINES LTD/FSSTI INDEX
(%) 120
110
10.50 10.00 100 9.50 9.00 8.50
KEY FINANCIALS Year to 31 Mar (S$m)
90
6
2016
2017
2018F
2019F
2020F
15,239 2,257 681 804 804 69.0 16.6 1.0 6.9 3.9 5.3 (24.7) n.a. 6.4 -
14,869 2,215 623 360 301 25.7 44.6 1.0 7.0 1.7 2.4 (15.9) n.a. 2.8 -
15,802 2,682 1,012 804 631 53.4 21.4 1.0 5.8 2.4 5.1 11.4 58.1 6.0 578 1.09
16,207 2,694 977 734 734 62.2 18.4 0.9 5.8 2.2 4.5 36.0 18.2 5.2 547 1.34
16,686 2,801 1,053 719 719 60.9 18.8 0.9 5.5 2.1 4.3 57.9 10.6 5.0 513 1.40
4
Volume (m)
2
Net turnover EBITDA Operating profit Net profit (rep./act.) Net profit (adj.) EPS (S cent) PE (x) P/B (x) EV/EBITDA (x) Dividend yield (%) Net margin (%) Net debt/(cash) to equity (%) Interest cover (x) ROE (%) Consensus net profit UOBKH/Consensus (x)
0
Jan 17
Mar 17
May 17
Jul 17
Sep 17
Nov 17
Jan 18
Source: Bloomberg
ANALYST(S) K Ajith +65 6590 6627
[email protected]
Source: SIA, Bloomberg, UOB Kay Hian
Refer to last page for important disclosures.
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• High load factors and strong yields expected to drive SIA Cargo’s operating profit. In 2QFY18, SIA Cargo registered a 236% yoy jump in operating profit (reversing from a loss in 3QFY15), led by yield growth of 9.1% and a 2.8ppt increase in load factors. We expect a similar rate of growth in earnings for 3QFY18 and we are partially guided by the strong 15-22% yoy increase in cargo yields by Taiwanese carriers over the same period. On the slightly negative side, we note that there was a 5ppt decline in loads for the Americas in Dec 17 and this could lower yields for the month as the region is a highyielding market. Every 1 cent rise from our base yield assumption of 28.7 cents is expected to improve 3QFY18 PBT and net profit by 5.6% and 5.3% respectively. • SilkAir and Scoot could underperform parent airline in 3QFY18. Although all airline subsidiaries reported significant improvements in pax traffic for the quarter, SilkAir’s and Scoot’s operating profits could decline amid rising fuel cost. In 2QFY18, SilkAir’s operating profit fell while the parent airline’s rose, as SilkAir reported a 10.5% yoy decline in pax yields. • SIA could report minor fuel hedging gains in 3QFY18. We assumed SIA could report S$20m in fuel hedging gains at the parent level vs a hedging loss of S$42.2m in 3QFY17. SIA had guided that it had hedged approximately 49% of its fuel requirements for 2HFY18 at about US$65/bbl on jet fuel (including Brent contracts) and has long-dated Brent contracts until FY23 at US$53-59. Comparatively, jet fuel prices averaged US$66.30 in 3QFY18. STOCK IMPACT • We expect SIA to meet earning expectations, largely driven by the parent airline and SIA Cargo. Yields could improve by a better-than-expected quantum. Most notably, cargo yields could increase by much more than our estimate of 5.1%, as seen in the numbers reported by Taiwanese carriers. On a negative note, airline subsidiaries are expected to underperform the parent airline if yields do not rise in tandem with unit costs. • Proposed 30% increase in landing fees is a concern. If landing fees rise by 30% out of Singapore, this could reduce our FY19 net profit estimate by 15%. Based on our estimates, SIA must raise average ticket prices by 1% to commensurate the rise in expenditure. In comparison, landing and parking charges for the parent airline rose 4.8% yoy and accounted for more than 5.9% of the total costs in 1HFY18.
Wednesday, 31 January 2018
3QFY18F ASSUMED OPERATING STATS Year to 31 Mar Pax yield (S cent/RPK) Cargo yield (S cent/CTK) Pax Unit cost (S cent/ASK) Cargo Unit cost (S cent/AFTK) Pax breakeven LF (%) Pax LF (%) Cargo breakeven LF (%) Cargo LF (%)
3QFY18F 10.4 28.7 8.24 17.7 79.2 81.0 61.7 68.3
yoy % chg 0.0 5.1 1.7 6.6 1.3ppt 2.0ppt 0.9ppt 2.4ppt
Source: SIA, UOB Kay Hian
SIA EX-SIAEC P/B (x ) 1.3 1.2
+1SD
1.1 1.0
Mean
0.9 0.8
-1SD
0.7 0.6 0.5 06
07
08
09
10
11
12
13
14
15
16
17
18
Source: Datastream, UOB Kay Hian
SOTP VALUATION (S$) SIA Book Value Per Share Less Carrying Cost Of SIAEC Per Share SIA value per share (ex SIAEC) SIA @ 0.9x BV Fair Value per share of 77% SIAEC stake Value of SIA Group
FY18F 12.06 0.98 11.08 9.66 2.32 11.90
Source: UOB Kay Hian
SIA PAX YIELDS
• Some of the questions that we will pose to management at 14 February’s results briefing include: a) The reasons behind the 5% decline in cargo loads to the Americas in Dec 17. b) Impact of the 30% increase in landing and parking fees. Will it be introduced gradually or immediately. c) To elaborate on any plans or partnerships for the digital transformation. d) Outlook for pax and cargo yields, and impact from a strong Singapore dollar.
Source: SIA
EARNINGS REVISION/RISK • No change to our net profit estimates. VALUATION/RECOMMENDATION • Maintain BUY and target price of S$11.90. We continue to value SIA at 0.9x P/B. SHARE PRICE CATALYST • Improving pax and cargo yields. • Strong 3QFY18 earnings.
Refer to last page for important disclosures.
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PROFIT & LOSS Year to 31 Mar (S$m) Net turnover
Wednesday, 31 January 2018
BALANCE SHEET 2017
2018F
2019F
2020F
Year to 31 Mar (S$m)
2018F
2019F
2020F
14,868.5
15,801.6
16,207.5
16,685.8
16,433.3
20,561.8
24,794.1
28,896.7
EBITDA
2,214.7
2,681.6
2,694.2
2,801.2
Other LT assets
2,586.7
2,536.8
2,471.5
2,291.7
Deprec. & amort.
1,591.9
1,670.0
1,717.5
1,747.9
Cash/ST investment
3,920.4
3,131.7
2,255.8
2,469.0
EBIT
622.8
1,011.5
976.7
1,053.4
Other current assets
1,779.6
1,847.1
1,882.9
1,925.0
Total other non-operating income
(95.4)
18.3
8.3
10.3
Total assets
24,720.0
28,077.5
31,404.3
35,582.4
Associate contributions
(36.6)
(6.4)
61.7
81.9
ST debt
27.8
(46.2)
(148.3)
(263.3)
Net interest income/(expense)
Fixed assets
2017
42.0
42.0
42.0
42.0
Other current liabilities
6,246.6
6,055.3
6,175.7
6,333.6
LT debt
1,794.7
4,672.2
7,350.7
10,929.2
Other LT liabilities
3,166.5
3,066.5
3,166.5
3,166.5
13,083.0
13,845.4
14,263.2
14,693.5
387.2
396.1
406.2
417.6
24,720.0
28,077.5
31,404.3
35,582.4
2017
2018F
2019F
2020F
Pre-tax profit
518.6
977.3
898.5
882.3
Tax
(76.7)
(127.0)
(116.8)
(114.7)
Minorities
(81.5)
(46.5)
(47.6)
(49.0)
Shareholders' equity
Net profit
360.4
803.7
734.1
718.6
Minority interest
Net profit (adj.)
301.3
630.8
734.1
718.6
Total liabilities & equity
2017
2018F
2019F
2020F
CASH FLOW Year to 31 Mar (S$m) Operating
KEY METRICS Year to 31 Mar (%)
2,532.9
2,157.9
2,693.9
2,832.1
Pre-tax profit
518.6
977.3
898.5
882.3
EBITDA margin
14.9
17.0
16.6
16.8
Tax
(50.5)
(76.7)
(127.0)
(116.8)
Pre-tax margin
3.5
6.2
5.5
5.3
1,589.8
1,666.0
1,713.5
1,743.9
Net margin
2.4
5.1
4.5
4.3
96.8
(456.3)
117.3
138.3
ROA
1.5
3.0
2.5
2.1
407.8
3.3
(54.8)
(77.0)
ROE
2.8
6.0
5.2
5.0
3.0
Deprec. & amort. Working capital changes Non-cash items Other operating cashflows
Profitability
(29.6)
44.4
146.5
261.5
Investing
(2,943.5)
(5,615.1)
(5,779.0)
(5,696.1)
Growth
Capex (growth)
(3,944.7)
(6,000.0)
(6,200.0)
(6,100.0)
Turnover
(2.4)
6.3
2.6
848.6
0.0
0.0
0.0
EBITDA
(1.9)
21.1
0.5
4.0
45.4
243.2
293.2
293.2
Pre-tax profit
(46.7)
88.4
(8.1)
(1.8)
Investments Proceeds from sale of assets Others
107.2
141.7
127.8
110.7
Net profit
(55.2)
123.0
(8.7)
(2.1)
Financing
(224.6)
2,668.5
2,209.2
3,077.2
Net profit (adj.)
(62.5)
109.4
16.4
(2.1)
Dividend payments
(558.9)
(273.9)
(358.9)
(330.8)
EPS
(62.7)
107.8
16.4
(2.0)
Issue of shares
(101.1)
25.0
5.0
5.0
431.8
3,000.0
3,000.0
4,000.0
Leverage
(213.5)
(21.5)
(321.5)
(421.5)
Debt to total capital
12.0
24.9
33.5
42.1
217.1
(61.1)
(115.4)
(175.5)
Debt to equity
14.0
34.0
51.8
74.7
Net cash inflow (outflow)
(635.2)
(788.7)
(875.9)
213.2
(15.9)
11.4
36.0
57.9
Beginning cash & cash equivalent Changes due to forex impact
3,972.4 43.3
3,380.5 0.0
2,591.8 0.0
1,715.9 0.0
n.a.
58.1
18.2
10.6
Ending cash & cash equivalent
3,380.5
2,591.8
1,715.9
1,929.1
Proceeds from borrowings Loan repayment Others/interest paid
Refer to last page for important disclosures.
Net debt/(cash) to equity Interest cover (x)
103
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Wednesday, 31 January 2018
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Wednesday, 31 January 2018
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