Slowly but surely
? 3QFY3/22 net profit of S$33m (+217% qoq) was above expectations due to one-time tax provision writeback from associates.
? EBIT loss in 3Q widened qoq due to tapering government support. We lower our FY23-24F EPS by 5-9% in view of higher-than-expected staff expenses.
? Progressive ramp up in VTL traffic should help 1HFY3/23F revenue growth. Reiterate Add with unchanged TP of S$2.92, pegged to 2.0x CY22F P/BV.
Associates helped by one-off tax provision writeback
SIE’s 3QFY3/22 net profit came in above expectations at S$33m (+217% qoq, +331% yoy), with 9M22 net profit forming 90%/101% of our/consensus’ FY3/22F forecasts. The beat was largely due to stronger associates’ contributions (S$40m, +234% qoq) from a one-time tax provision writeback (amount undisclosed). Revenue of S$140m (+1% qoq, +34% yoy) was driven by 1) higher flights handled at 12.9k flights (+17% qoq), and 2) more light checks conducted at 92 checks (+19% qoq). EBIT loss widened to S$7.8m (vs. S$3.8m loss in 2QFY3/22) due to higher staff expenses from tapering government support.
Expanding its engine and component service offerings
2HFY3/22 has been a busy half for the group, with SIE expanding its engine and component service offerings via new agreements and the acquisition of SR Technics Malaysia (SRTM). On 16 Feb 22, the group agreed to acquire a 75% stake in SRTM for an all-cash consideration of US$3.75m, completion of which would provide SIE with a component MRO business based in Malaysia. SIE has also expanded its engine capabilities to include the CFM LEAP 1A and 1B engines via 1) a 10-year engine test services agreement, and 2) commencement of new aircraft engine services facility to provide quick turn and modification embodiment services.
FY23-24F EPS cut by 5-9% for higher staff expenses
We lift our FY3/22F net profit by 14% to S$73m (vs. S$11m net loss in FY3/21) in view of stronger-than-expected associates’ contributions. However, we cut our FY3/23-24F EPS by 5-9% as we expect high staff costs to remain an overhang. While the Singapore Government has announced an extension of targeted assistance for the aviation sector (details yet to be disclosed), we do not think the quantum of aid will be significant.
Valuations still attractive; reiterate Add at unchanged TP of S$2.92
We still like SIE as a proxy play for gradual air traffic recovery. We expect vaccinated travel lanes (VTL) to gain traction in 1QFY3/23F as Singapore progressively reinstates daily pax quotas and introduces new lanes. Valuations look attractive as SIE currently trades at 1.6x CY22F P/BV (-1.5 s.d. from 10-year historical mean). We reiterate Add at an unchanged TP of S$2.92, still pegged to 2.0 CY22F P/BV (average 12-month band just before Covid-19). Re-rating catalysts include faster-than-expected air traffic recovery, quicker recovery in associates. Downside risks include tightening of border controls