Recovery on track
? 2HFY3/22 net profit of S$43m was below our expectation due to higher staff
costs. Associate earnings (+356% yoy) were the key earnings driver.
? We expect airframe overhaul and line maintenance revenue to recover to
75%/90%/100% of pre-Covid-19 levels in FY23F/24F/25F.
? Though the stock has appreciated 20% YTD, it is still attractive at 1 s.d.
below 10-year mean. Reiterate Add with an unchanged TP of S$2.92.
Strong associates growth, but wider operating losses
SIE reported 2HFY3/22 net profit of S$43m (+70% hoh, +452% yoy), bringing FY3/22 net
profit to S$68m (FY21: S$11m net loss). We deem the results below expectations, as
FY22 net profit formed 93% of our and 96% of Bloomberg consensus forecasts. The miss
was attributable to higher staff costs (+22% hoh, +50% yoy), w hich resulted in 2HFY22
EBIT loss w idening hoh to S$15m. Its share of associates’ profits improved to S$52m
(+95% hoh, +356% yoy) in 2HFY22, driven by 1) one-off tax w riteback and 2) more
engine inductions. No dividends w ere declared in the financial year.
We expect staff costs to increase 43% yoy in FY23F
Management highlighted that previous cuts in w ages have mostly been reinstated. We
believe staff costs should remain elevated in FY23F due to 1) tapering government w age
support by July 2022 (c.S$94m in FY22), 2) w age inflation, and 3) headcount ramp-up
(end-FY21 headcount of 4.3k vs. pre-Covid-19’s 4.6k). We forecast staff costs to
increase 43% yoy in FY23F, and low er our FY23F EPS by 7%. We project S$4m
operating loss for FY23F (vs. FY22: S$22m loss), before a return to EBIT profitability in
2HFY23.
Returning to 90% of pre-Covid-19 levels by FY24F
Flights handled by SIE at Changi Airport grew to 27k in 2HFY22 (+31% hoh, +65% yoy),
in line w ith rising flight activity. The group also saw improvements in both light checks
(186 checks, +15% hoh) and heavy checks (47 checks, +2% hoh) conducted in
Singapore. With Singapore easing its border measures, management is confident of a
stronger recovery in FY23F. Passenger traffic at Changi Airport recovered to c.40% of
pre-pandemic levels in Apr, according to the Transport Ministry. We expect airframe
overhaul and line maintenance revenue to recover to 75%/90%/100% of pre-Covid-19
levels (FY18-20 average) in FY23F/24F/25F, and raise our FY24F EPS by 17%.
Valuations still attractive despite recent run-up, reiterate Add
While SIE’s share price has performed w ell YTD (+20%), w e believe its valuation is still
attractive at 1.8x CY22F P/BV (~1 s.d. below its 10-year historical mean). Net cash
remains strong, at S$623m as at end-Mar. We reiterate Add w ith an unchanged TP of
S$2.92, still pegged to CY22F P/BV of 2.0x, its 12-month average just before Covid-19.
Potential re-rating catalysts include faster-than-expected air traffic recovery. Dow nside
risks include tightening of border controls and rising cost pressures.