Rating HOLD (as at 20 May 2022)
Last Close SGD 5.38
Fair Value SGD 5.57
Net loss narrowed
• Full year net loss narrowed by 77.5% year-on year (YoY) to SGD962.0m
• SIA remained hedged up to 1QFY24
• Plans to reinstate 61% of pre-Covid passenger capacity by Jun 2022
Investment thesis
Singapore Airlines’ (SIA) 2HFY22 (financial year ending Mar 2022)’s revenue improved 69.4% half-on-half (HoH) to SGD4.8b, supported by stronger passenger and cargo performances. Net profit in 4QFY22 was back to a loss of SGD209.9m vs a profit of SGD84.7m in 3QFY22, due to the impact of Omicron variant and a seasonally weaker quarter of cargo demand. For full year, SIA’s revenue rose 99.6% year-on-year (YoY) to SGD7.6b while net loss narrowed by 77.5% YoY to SGD962.0m. Passenger flown revenue grew by four-fold YoY to SGD2.8b in FY22, which was ~22% of its pre-Covid levels, while cargo flown revenue reached a record high of SGD4.3b (+60.2% YoY). In Apr 2022, passenger capacity had reached 57% of its pre-Covid levels. SIA plans to reinstate 61% of pre-Covid passenger capacity by 1QFY23 (Jun 2022). We revise our estimates and consequently, increase our fair value estimate from SGD5.23 to SGD5.57. Valuations look demanding and the optimism from reopening has largely been priced in, in our view.
Investment summary
• Net loss of SGD125.2m in 2HFY22 as 4QFY22 net income was back to red – SIA’s 2HFY22 results came in within our expectations. Revenue improved 69.4% HoH to SGD4.8b in 2HFY22, supported by stronger passenger and cargo performances, on the back of easing travel restrictions and the expansion of
Vaccinated Travel Lanes (VTL). Net profit in 4QFY22 was back to a loss of SGD209.9m vs a profit of
SGD84.7m in 3QFY22, due to the impact of Omicron variant and a seasonally weaker quarter of cargo
demand. For full year, SIA’s revenue rose 99.6% YoY to SGD7.6b while net loss narrowed by 77.5% YoY to
SGD962.0m. No dividend was declared, same as last year.
• Passenger capacity improved to 47% of pre-Covid levels in 4QFY22 – Passenger carriage improved ~6x
in FY22 which outpaced capacity expansion of 216% YoY. As such, passenger flown revenue grew by four fold YoY to SGD2.8b in FY22, which was ~22% of its pre-Covid levels, while cargo flown revenue reached a
record high of SGD4.3b (+60.2% YoY) due to continued capacity constraints and strong demand. Operating income of SIA’s full service carrier and Scoot remained in a loss of SGD112m and SGD434m
respectively in FY22 due to higher operating expenses.
• Passenger capacity reached 47% and 57% of its pre Covid levels in Mar and Apr 2022 – Singapore fully
reopened its borders in Apr 2022, management shared that the forward bookings are strong and saw recovery across both leisure and corporate travellers. As of 4QFY22, overall capacity stood at 56.3% (passenger: 47%; cargo: 72%), comparing to 31.1% (passenger: 21%; cargo: 47%) of pre -Covid levels in
4QFY21. In Apr 2022, passenger capacity had reached 57% of its pre-Covid levels (+6 percentage points month -on -month). SIA plans to reinstate 61% of pre-Covid passenger capacity by 1QFY23 (Jun 2022).
• 40% of fuel hedged for 1QFY23 -1QFY24 – Total expenditure cost rose 38.6% HoH in 2HFY22 to SGD4.8b, with net fuel cost increasing 70.2% HoH due to higher fuel prices and volume while non -fuel costs were up 25.2% in line with an increase in capacity. SIA had hedged 40% of its fuel requirements at a
weighted average price of USD60/bbl for Brent from 1QFY23 -1QFY24. Management is comfortable with
the current hedging position. We revise our estimates and consequently, increase our fair value estimate
from SGD5.23 to SGD5.75. Valuations look demanding and the optimism from reopening has largely been priced in, in our view. While air travel demand is strong with an earlier-than-expected reopening in Singapore, cost inflation could weigh on SIA’s performance and recovery trajectory.