3QFY24 missed expectations on pricing and cost pressures
- SIA reported 3QFY24 headline net profit of S$659m (-6.8% q-o-q, +4.9% y-o-y). However, the group recognised a one-off tax credit (amount is not disclosed) that resulted in materially lower tax expenses for the quarter. Without this, the core net profit would likely have been between S$575m and S$625m. 9MFY24 core net profit of S$2016m to S$2066m accounts for about 76% of the consensus and DBS’s full-year estimate.
- 3QFY24 revenue was S$5,082m (+8.5% q-o-q and +4.9% y-o-y), also a record quarterly revenue for the group. This was driven by passenger traffic growth (approximately 95% of 2019’s level in 3QFY24, up from 80% in 3QFY23), though partially offset by softer passenger yields (-7.4% y-o-y) and cargo yields (-37.4% y-o-y).
- EBITDA declined by 8.8% q-o-q and 4.7% y-o-y as lower unit costs and traffic growth were insufficient to offset pricing pressures, with the group’s EBITDA margin shrinking to 27.0% in 3QFY24.
- Share price reaction is likely to be negative, as the market is likely expecting another strong quarter, given the stock’s solid YTD performance.
Our thoughts
SIA’s 3QFY24 results was disappointing, considering the sequential decline in the group’s EBITDA and operating margin in a seasonally stronger quarter. Group passenger traffic grew by 3.6% q-o-q and 19.1% y-o-y in 3QFY24, with overall passenger load factors remaining at an elevated level of 88.2%. Passenger yields for both SIA and Scoot declined more rapidly than anticipated (SIA: -4.6% y-o-y, Scoot: -15.3% y-o-y), offsetting the improvement in ex-fuel unit costs (SIA: -2.1% y-o-y, Scoot: +2.4% y-o-y). The cargo segment saw a slight uplift in volumes (+3.9% y-o-y) due to robust e-commerce demand, though cargo yields continued to decline (-37.4% y-o-y). Consequently, the group’s EBITDA moderated on a sequential and annual basis, with its EBITDA margin contracting to 27.0% in 3QFY24, down from 32.1% in 2QFY24 and 29.7% in 3QFY23.
Looking ahead, SIA’s forward bookings remain strong, bolstered by the upcoming March school holidays and the Easter holiday season. The group has indicated that capacity is expected to fully recover in FY25F, up from c.90% of pre-pandemic levels in 3QFY24. However, sustained downward pressure on passenger yields amidst increasing competition and cost pressures are likely to impact the group’s profitability, reinforcing our thesis that the group’s earnings will peak in FY24. We anticipate a decline in SIA’s share price, as the market appears to be in search of a stronger set of results, particularly in light of the stock’s robust performance year-to-date.
We currently have a HOLD call and a TP of S$7.00 on SIA. More updates following the analyst briefing.