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4QFY22 results in line; recovery prospects look brighter
Results highlights
- 4QFY22 net loss came in at S$209.9m (vs net loss of S$661.9m in 4QFY21 and net profit of S$84.7m in 3QFY22). Full-year net loss of S$962.0m was in line with consensus’ estimate of a S$954m net loss.
- Passenger revenue surpassed cargo revenue for the first time since the pandemic started in 4QFY22. 4QFY22 revenue of S$2,471.9m was up 6.7% q-o-q and 121.7% y-o-y. Softer sequential growth in the quarter was due to a 14.2% decline in air freight volumes and marginal cargo yield compression, but offset by a significant increase in passenger volumes (group RPK up by 64.7% q-o-q)
- The SIA group generated positive operating cash flow (before interest payments) of S$3,041.5m in FY22, up significantly from a net cash outflow from operations of S$3,292.4m in FY21 due to improvement in its core operations and favourable working capital changes (significant increase in forward bookings).
Analyst briefing highlights:
- Krisflyer membership is 11% above pre-COVID19 levels – the group also shared that Krisflyer revenue has exceeded pre-pandemic levels, which was north of S$700m in FY19. Additionally, its new lifestyle and rewards app, Kris+, saw a 3-fold and 4-fold increase in active users and total downloads respectively in FY22. SIA will continue to roll out new product features and onboard more merchants on Kris+ to enhance the user experience and further drive customer engagement.
- No change to SIA’s hedging position – SIA has hedged about 40% of its projected jet fuel consumption over the next five quarters at an average Brent price of US$60/bbl, and will also recognise US$98m of hedging gains from trades closed out earlier.
- Capex guidance revised to S$12.5bn over the next three years, up from S$12.0bn previously – the increase in capex largely stems from the group’s order of 7 A350 freighters. In FY23F, the group has plans to introduce 17 aircraft, consisting of 3 A350s, 3 B787s and 8 B737-MAX, and retire 1 aircraft. While the B787 deliveries are still on hold at the moment, Boeing recently announced that deliveries should resume in 2H of 2022. Additionally, delays in B777X deliveries should have limited impact on the group’s forward capacity, according to the management.
- Forward bookings indicate an imminent meaningful rebound in air passenger traffic across all customer segments – The management shared that forward bookings as a % of total available seat capacity for SIA Group flights over the next three months is fast approaching pre-pandemic levels, and flights for the next two months are fully booked for many sectors. The turnaround in corporate bookings was sluggish at the onset, but SIA has seen a marked rebound in corporate travel activity since April when Singapore fully reopened its borders, with the contribution from the corporate segment similar to pre-COVID19 levels. The pace of recovery is certainly ahead of our expectations, as we initially anticipated an extended timeframe for the recovery in SIA’s corporate travel activity.
- Adequate manpower to swiftly ramp up passenger capacity, but wage inflation pressures are present – the management shared that in terms of headcount, the number of pilots with the group is close to pre-pandemic levels as the group did not retrench any pilots (except for expats) over the pandemic. Although cabin crew headcount is below pre-COVID19 levels, SIA is currently calling back cabin crew members that were previously re-deployed elsewhere during the pandemic and started hiring again two months ago. The management expressed confidence that they will have sufficient manpower as they rebuild capacity. However, the progressive reversal of pilot wage cuts over April-22 and December-22 coupled with the absence of wage subsidies will translate into steeper increase in staff costs in FY23F.
- Sustainable aviation fuel (SAF) project with CAAS and Temasek to start from 2QFY23 – Testament to the group’s commitment to net zero emissions by 2050, SIA recently completed a feasibility study with various ecosystem partners on the use of sustainable aviation fuel at Changi Airport, and will begin with the purchase of 1.25m litres of neat SAF to be used on SIA and Scoot flights from July-2022. Based on preliminary discussions, we believe this will not lead to increased operating costs for the group as project partners will cover the cost differential between traditional jet fuel and SAF.
Earnings revision and recommendation:
- Lift FY23/24F net profit estimates by 31.0% and 2.2% respectively, to factor higher near-term passenger load factors for the group given the solid momentum in forward bookings. Maintain BUY with unchanged TP of S$6.20.