FY22: Results In Line; Emerging Strong In FY23
SIA’s FY22 revenue of S$7,615m and net loss of S$962m were in line with our forecasts.
There are signs that SIA’s recovery trajectory is steeper than we previously expected.
We now expect SIA to turn in an exceptionally strong FY23 net profit of S$1.35b, driven
by strong pax volume, strong pax yields and a fuel hedge gain of over S$1b. Despite
strong near-term earnings outlook, valuation is stretched. Maintain HOLD. Our new
target price of S$4.88 is based on 1.12x FY23 P/B (2SD above historical average).
RESULTS
• Results in line. Singapore Airlines’ (SIA) FY22 revenue of S$7,615m and net loss of
S$962m are in line with our expectations, at 100% and 99% of our forecasts respectively.
Revenue growth was contributed by all segments: passenger flown revenue rose 310% yoy
to S$2,806m in FY22 and cargo revenue rose 60% yoy to S$4,339m. Net loss narrowed
significantly to S$962m in FY22, from S$4,270m in net losses in FY21, driven by: a)
improving operating performance, b) absence of major impairment charges (impairment
charges collectively amounted to about S$2b in FY21), and c) a fuel hedge gain of S$297m
in FY22 vs a hedge loss of S$548m in FY21. Excluding non-recurring gains/losses, SIA
would have registered a net loss of S$1,186m in FY22 (FY21: S$1,693m net loss).
STOCK IMPACT
• Upbeat Apr 22 operation data pointing to faster-than-expected recovery. SIA’s recently
released Apr 22 operation data was stronger than our expectations. While the pace of
recovery in pax capacity (at 57% of pre-pandemic level in Apr 22) was well-guided by SIA,
the key surprise came from the magnitude of improvement in pax load factor (LF). The Apr
22 actual pax LF of 72.7% (+18.2ppt mom) was already ahead of our FY23 full-year pax LF
projection of 68.3%, pointing to a recovery trajectory that is steeper than we previously
expected.
• Strong pax yield in next few quarters. The recent border measure relaxations in
Singapore have unlocked significant pent-up demand for air travel. The immediate lift in
demand for air tickets has outpaced the near-term ramp-up in seat supply, leading to
generally higher air ticket prices than pre-pandemic days. According to management, seats
of SIA are well booked in the next few months till August. We believe the bookings are on
strong pricing points and will translate to strong pax yield in the next few quarters.
• MCB redemption likely earlier than expected, in FY23/24. In our SIA initiation report
dated 28 Mar 22, we noted that the redemption of the Mandatory Convertible Bonds (MCBs)
should be a priority of SIA and our base case was that SIA would redeem the MCBs in two
batches in FY25 and FY26, by refinancing them with straight debts. Now given the strong
recovery trajectory and upbeat earnings outlook in FY23, we believe SIA is likely to redeem
the MCBs even earlier. Our updated assumption is that SIA will redeem the MCBs in two
batches in FY23 and FY24 (outstanding redemption value of MCBs as of end-22 was
S$10.14b vs SIA’s end-22 gross cash balance of S$13.76b).
EARNINGS REVISION
• Expecting exceptionally strong FY23. We have revised our FY23-25 net profit forecasts
upward, as summarized in the table below. FY23 earnings have seen the biggest uplift – we
are now forecasting S$1.35b net profit in FY23 (previously S$420m), on the back of a strong
pax volume recovery and strong pax yields. FY23 performance would also be helped by a
fuel hedge gain of about S$1b. FY24 net profit forecast is lower than FY23 due mainly to a
lower fuel hedge gain (about S$290m), although net profit excluding the fuel hedge gain
would be higher yoy. FY25 net profit forecast is lower than FY24, due to the absence of fuel
hedge gain as well as higher interest costs from straight debts that replace MCBs (the
accrued interest costs of the MCBS in FY23 and FY24 were not reflected in SIA’s financial
statement due to the special accounting treatment of MCBs).
VALUATION/RECOMMENDATION
• Maintain HOLD with a new target price of S$4.88 (from S$4.85). We have switched our
valuation methodology for SIA to P/B (previously DCF). Our target price of S$4.88 is now
based on 1.12x FY23 P/B, which is equivalent to 2SD above SIA’s historical mean P/B of
0.79x. The table on the right shows the sensitivity of our target price on different P/B pegs.
SIA’s current trading price of S$5.38 implies an FY23 P/B of 1.24x, standing at 2.7SD above
historical average.
SHARE PRICE CATALYST
• Positive news flow on the Singapore aviation sector recovery would keep the sentiment
towards SIA buoyant. SIA is likely to report strong net profits in the next two quarters.
RISKS
• Any event that disrupts the aviation sector recovery.