1QFY23 results significantly above expectations
<Results First Take!> 1QFY23 results significantly above expectations
- SIA returned into the black again in 1QFY23 with a net profit of S$370.4m, accounting for 71.7%/56.5% of consensus/DBS’s full-year forecast; operating profit of S$556.4m in 1QFY23 was the second highest in SIA’s history.
- 1QFY23 revenue of S$3,910.9m was up by 58.2% q-o-q and 202.1% y-o-y, led by passenger-services skyrocketing by 117.9% q-o-q and 743.0% y-o-y; cargo revenue remained robust despite a dip in volumes due to an uptick in yield
- Forward booking data suggests passenger demand will remain buoyant into the holiday season; group capacity is projected to ramp up to 68% and 76% of pre-pandemic levels over the next two quarters, up from 61% in 1QFY23.
- We currently have a BUY call and TP of S$6.20 on SIA; earnings projections and TP are under review. More details to follow after the analyst briefing tomorrow.
Our thoughts
- Passenger traffic staged a rapid turnaround during the quarter, driven by the restoration of capacity and extremely strong passenger load factors. Group passenger volumes (measured in RPK) hit 69% of 2019’s level in June-22, up from just 24% in Jan-22.
- SIA has plans to ramp up group passenger capacity to 68% and 76% of pre-pandemic levels over the next two quarters, up from 61% in 1QFY23. Capacity expansion may be more measured in FY24F as it will be predicated on the reopening of China.
- To our surprise, yields for the flagship carrier, SIA, strengthened during the quarter on a sequential basis to 12.3Scts per RPK, up from 12.0Scts in the previous quarter on the back of record passenger load factors (87.8% in June-22 vs 43.8% in Jan-22).
- While passenger yields should trend down over the near term as competitors restore more capacity, they will likely stay above pre-COVID19 levels for some time.
- SIA’s cargo segment saw a slight decline in cargo volumes (-3.7% q-o-q, -1.4% y-o-y) due to a slowdown in manufacturing activity and lockdowns in China, but enjoyed higher cargo yields (+2.4% q-o-q, +25.4% y-o-y) as global supply chains continues to be stretched and air cargo capacity remains tight in Asia.
- Similar to passenger yields, cargo yields should remain considerably higher than pre-COVID19 levels in the near to medium-term despite softer manufacturing activity as the COVID-19 situation in China stabilises and capacity remains constructive.
- Robust operating cashflows during the period helped SIA turn into a net cash position of S$0.5bn in 1QFY23, as compared to net debt of S$1.5bn in 4QFY22. Adjusted net gearing ratio (by treating MCBs as debt) fell to 0.70 in 1QFY23 from 0.86 in the previous quarter. SIA’s incredibly strong financial leverage supports our thesis that the group will fully redeem outstanding MCBs over the next 1-2 years (before the step-up in interest costs on the MCBs).
- SIA continues to be one of our preferred reopening plays as we expect sustained earnings momentum for the group as passenger traffic continues to rebound and yields continue to be supportive.
- Earnings estimates will be revised following the analyst briefing tomorrow.