2QFY23 results above expectations with record operating profit and resumption of dividends
<Results First Take> Singapore Airlines (SIA SP): 2QFY23 results above expectations with record operating profit and resumption of dividends
- 2QFY23 net income of S$556.5m (+50.2% q-o-q, vs net loss of S$427.6m in 2QFY22) surpassed expectations. 1HFY23 net income amounted to S$926.9m, accounting for 60%/79% of DBS/consensus’ full-year estimate. Operating profit of S$678.0m in 2QFY23 represents a new quarterly high for the group.
- 2QFY23 revenue of S$2,471.9m was up 14.8% q-o-q and 192.9% y-o-y, primarily driven by a significant rebound in passenger revenue, partially offset by softer cargo revenue.
- Overall operating metrics were robust, with record passenger load factors and passenger yields for SIA (full-service carrier) strengthening on a sequential basis during the quarter.
- Interim dividend of 10.0Scts was declared (first dividend distribution since the pandemic started).
- Forward passenger bookings are expected to remain healthy into 4QFY23; cargo demand is expected to moderate given macroeconomic challenges.
Our thoughts
- Overall numbers were quite encouraging, especially for SIA’s passenger yields in 2QFY23 (25-30% above pre-pandemic levels) and cargo yields (holding firm despite less favourable supply-demand dynamics).
- Recent reopening of key markets in North Asia, including Japan and Taiwan are tailwinds for the group, and will enable SIA to capitalise on strong travel demand in the upcoming holiday season.
- Guidance for group capacity was tweaked down slightly; but net impact should be neutral – SIA initially guided for group capacity to hit 81% by Dec-22, but revised its projection down to 76% for 2HFY23 (until March-23). However, we anticipate this to be largely mitigated by elevated passenger yields (with capacity remaining tight).
- Though we expected it, the resumption of dividends is a surprise to the market, and should boost sentiment on the stock. Our full-year DPS estimate of S$0.20-0.25 per share, implies a dividend yield of 3.5-5.0% based on current share price levels.
- Bloated cash balance and solid operating cash flows to support redemption of second tranche of MCBs. SIA’s gross cash balance swelled to S$17.5bn in Sep-22, up from S$16.1bn in the previous quarter, with an operating cash flow of S$4.9bn in 1HFY23. We believe that the group’s strong cash position and cash flows support our thesis that the MCBs will be fully redeemed sooner, rather than later.
- We currently have a BUY call and TP of S$6.60. More updates to follow after the analyst briefing on Monday (04/11/2022).
