Singapore Airlines (SIA SP): 3QFY22 Results Analysis: Surprise profit but sustained turnaround will take time.
3QFY22 Results Analysis: Surprise profit but sustained turnaround will take time.
- 3Q22 net profit of S$85m vs. S$142m loss a year ago, above our expectations
- Turnaround was led by exceptional performance from the Cargo segment, which is unlikely to repeat itself
- Longer term recovery in sight for core passenger business but concerns such as China’s pace of reopening and elevated oil prices are an overhang
- Maintain HOLD, TP S$4.90 as the longer term recovery story is already priced into the current 1.2x P/B multiple (+1 SD)
Highlights
SIA reported a surprise net profit of S$85m in 3QFY22, the first since the start of the pandemic, riding on an exceptionally strong Cargo performance, vs. a loss of S$142m a year ago.
For 9M22, SIA posted an overall net loss of S$752m vs a loss of S$3.6bn a year ago, which is above our expectations (against our full year estimated loss of S$1.3bn)
3QFY22 revenue rose by 117% y-o-y to S$2.3bn, led by a five-fold increase in passenger carriage to 5.7bn p-kms on a 170% y-o-y increase in capacity as Singapore’s VTLs were launched in the quarter. Cargo revenue was also higher substantially on higher yield (+27% y-o-y to 81.5cts) and higher carriage (+43% y-o-y to 1,657 tonne-km) as capacity rose 49% y-o-y with more available belly-hold cargo space on passenger flights.
For 9M22, revenue rose to S$5.1bn ver S$2.7bn a year ago, slightly above our full year forecast of S$6.5bn.
Balance sheet remains strong with cash of S$12.1bn, vs total debt of S$14.9bn and shareholders’ equity of S$22.1bn at the end of 3Q.
SIA reported an operating cash surplus of S$322m for the first nine months of FY22 thanks to the exceptional 3Q performance.
Our thoughts
While the exceptional performance for SIA’s cargo business in 3QFY22 (load factor of 83% and cargo yield of 81.5cts vs. unit cost of 27.4cts) and 3Q being seasonally the strongest for the Cargo business, is unlikely to ever repeat itself as more cargo capacity is made available from more passenger capacity being restored, the show of profit by SIA during the quarter even as we are just emerging from the pandemic (in terms of the reopening of international borders) is a positive sign that SIA is seeing the light at the end of the tunnel. Assuming the steady reopening of international borders continues and that demand also recovers strongly, SIA’s passenger business could start to breakeven or turnaround in a few more quarters. There are however, still a few areas of concerns – 1) China’s international borders remain closed and this is one of SIA’s key markets and 2) oil prices have crossed the US$100 per barrel mark and could remain elevated in the months ahead.
The stock is already trading at 1.2x adjusted P/B, which represents +1 SD of its 10 year mean, and we believe SIA’s longer term recovery prospects is already priced into this multiple. Maintain HOLD.