Flight volumes recovering well
- Flights handled in 1QFY3/23 were 53% of pre-Covid levels, driven by border reopenings. Net profit in line with our expectations but below consensus.
- Associates’ contribution improved 11% yoy while opex remained elevated (+37% yoy) due to reduced wage support and inflationary cost pressures.
- We expect SIE to be well-positioned as airlines continue to ramp up flight volumes. Reiterate Add at TP of S$2.92, based on 2.0x CY22F P/BV.
Operationally already at 53% of pre-Covid levels
SIE reported 1QFY3/23 net profit of S$13m (+34% qoq, -12% yoy), broadly in line with our expectations at 21% of our FY23F forecast, but below consensus at 17%. EBIT loss narrowed qoq to S$4.0m (vs. 4Q22: S$7.4m), driven by steady topline recovery (+37% yoy) as Singapore significantly eased its border restrictions in Apr. Opex rose 37% yoy, largely due to 1) reduced government wage support and 2) inflationary cost pressures. Share of associates’ profits recovered further to S$16m (+11% yoy) amid a ramp-up in regional flight activities. Flights handled by SIE at Changi Airport improved to 20k flights (53% of 1Q20 level) in 1Q23; light checks conducted were up 39% yoy, while heavy checks fell slightly by 5% yoy.
SR Technics acquisition completed; BAPAS operations ceased
SIE completed the 75% stake acquisition of Malaysia-based component MRO service provider SR Technics Malaysia (SRTM) on 31 May 22. While SRTM was loss-making in both FY20 and FY21 (due largely to tight border measures in Malaysia), we expect losses to narrow in FY22F with Malaysia fully reopening its international borders on 1 Apr 22. In Aug 22, SIE will also cease operations of its JV with Boeing (BAPAS) due to a challenging operating environment. We believe this is slightly positive for SIE as BAPAS has been lossmaking since 1HFY18, and we think SIE could book c.S$5m in impairment charges in 2Q23F.
Management remains cautious on the outlook
Passenger traffic at Changi Airport recovered to 46% of pre-Covid levels in May 22, according to the latest data from Changi Airport. While aviation volumes are expected to pick up in the coming quarters, management highlighted several key challenges of concern to the group: labour shortages, weakening macroeconomic conditions, supply chain disruptions, and potential outbreaks from new Covid-19 variants.
Reiterate Add, still the preferred proxy to reopening
We still like SIE as a proxy for a further recovery in regional flight activities. Net cash remains healthy at S$603m (vs. 4Q22: S$623m). SIE currently trades at c.1.6x CY22F P/BV, approximately 1 s.d. below its 10-year historical mean. We reiterate Add with an unchanged TP of S$2.92, still pegged to 2.0x CY22F P/BV, the average 12-month level before Covid-19. Re-rating catalysts include quicker reopening of North Asia borders. Downside risks include re-tightening of border controls and rising cost pressures.
