Singapore Air kept at 'buy' by analysts on expected earnings improvement
SINGAPORE (Feb 18): Despite a 27% drop in its 3Q19 earnings to $284.1 million, Singapore Airlines (SIA) is a still a “buy” in analysts’ books.
Revenue for the quarter was 6.5% higher y-o-y at $4.34 billion though, mainly on growth in passenger demand with passenger yields being flat.
For 9M19, group earnings came in at $480.1 million, 53% lower than its 9M18 earnings of $1.02 billion.
See: Singapore Airlines posts 27% drop in 3Q earnings to $284 mil on higher fuel costs
DBS Group Research is maintaining its “buy” call on SIA with a target price of $11.00.
Despite the group’s lower earnings y-o-y, on a q-o-q basis, earnings improved significantly, thanks to higher load factors and stringent non-fuel cost control.
SIA’s flagship passenger segment performed well with passenger load factor improving 1.8ppts to 83.4% while keeping passenger yield stable, enabling a decent growth in revenues for the segment. This helped to partially offset the weaker performances of Scoot and Silkair, both of which saw weaker yields during the quarter.
In a Friday report, analyst Paul Yong says, “Looking ahead, we expect SIA’s 4Q19 earnings to post a y-o-y improvement on lower fuel costs as spot jet fuel prices averaged US$80/bbl while the quarter-to-date average price of spot jet fuel is US$73/bbl and the current price is US$78/bbl.”
The analyst also believes that the group’s transformation programme to spur revenue growth should lead to better earnings.
OCBC Investment Research is also keeping its “buy” recommendation with a fair value estimate of $10.71, for now, pending an analyst briefing.
The group’s earnings came in better than the research house’s expectations.
In a Friday Market Pulse report, analyst Low Pei Han says, “Looking ahead, overall passenger bookings in the forward months are tracking capacity growth, but uncertainties surrounding US-China tariffs and their consequent effects on global trade flows, as well as Brexit, are clouding the overall demand outlook for both passenger and cargo.”
On the other hand, UOB Kay Hian is keeping its “hold” call on SIA with a target price of $10.20.
The group’s earnings came in above the research house’s and street’s estimates, due to stronger-than-expected pax yields and lower than expected non-fuel cost.
Despite a 6.4% y-o-y growth in revenue, operating profit was weak due to a 27% y-o-y rise in into-plane fuel cost.
The group noted that its US routes have strong load factors and favourable yields on the front end, but noted weaker pricing on the back end for the same sector. It also noted strong demand and yields on the direct business and premium economy only flights to Los Angeles and New York.
However, yields for the parent airline would have increased by 2% y-o-y, were it not for a stronger SGD.
In a Monday report, analyst K Ajith says, “A key positive is the fact that long haul yields are holding up. However, we are not sure to what extent the yields are a reflection of a period when consumer confidence was more buoyant.”
Yields typically fall as the economic cycle reverses and general cargo yields are a leading indicator of softer demand. Nonetheless, the analyst is open to the possibility that SIA’s firmer yields are due to improved product offerings and could remain firm for the next six months.
As at 11.05am, shares in SIA are trading at $9.90 or 17.8 FY19 earnings with a dividend yield of 1.8%.
