4 highlights from Singapore Airlines’ year-end earnings report

Singapore Airlines (SIA) released its fourth quarter and year-end results for its 2019/2020 financial year on Thursday 14 May 2020.

Here are four main highlights from the company’s latest financial update.

1. SIA’s share price rose nearly 2.0% post-earnings

The day after the national carrier of Singapore released its earnings (Friday 15 May), share price opened nearly 2.0% at S$3.89 per share.

The company also rose to become one of the five most traded equity counters on IG’s platform on Friday.

SIA’s shares currently have an average 12-month target price of S$5.86 per share, based on ratings from four analysts provided in the last two months.

Share price is down 57.85% year-to-date, with a peak of S$9.12 achieved on New Year’s Day – a month prior to the coronavirus outbreak.

The Singapore Airlines stock has a price-to-earnings ratio of 9.29 as of 11 May, roughly 40% below its historic average of 17.29. Market capitalisation currently stands at S$6.46 billion.

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2. SIA’s FY 2020/2021 guidance: further fuel hedging losses

In view of the uncertain recovery prospects for international air travel in the months ahead – which are dependent on the easing of border and travel controls, the group said in its Q4 earnings release that it ‘will maintain a minimum flight connectivity within its network during this period, while ensuring the flexibility to scale up capacity if there is an uptick in demand’ via an internal task force.

On the cargo front, the airline expects cargo revenues to be sustained in the near term, with demand for essential goods like medical supplies and fresh food products still exceeding air freight capacity (operating at roughly 40% of maximum cargo capacity) on many key routes.

The group did note that this trend was owing to a ‘sharp reduction’ in bellyhold capacity caused by the drop in passenger flights.

Finally, SIA said it expects to see further fuel hedging losses this year, with fuel prices predicted to remain weak in the near term.

The company previously informed that the collapse of fuel prices in March 2020 had led to fuel hedging losses on contracts maturing in the final quarter of FY2019/2020, with 79% of its fuel requirements in MOPS hedged at a weighted average price of US$76 per barrel.

3. SIA reiterates liquidity measures

The group also reiterated a pre-earnings statement posted on 08 May 2020 that it has enacted several liquidity measures.

These include management pay cuts of up to 30% starting 01 April 2020, voluntary and compulsory no-pay leave schemes in agreement with the unions, hiring freeze, and a shorter work month for all ground staff.

As aircraft payments make up a significant portion of its capital expenditure, the company said it has been negotiating with aircraft manufacturers to adjust its delivery stream for existing aircraft orders and with various suppliers to reschedule payments. The group has also deferred non-aircraft projects.

SIA has also undertaken a rights issue for shares as first announced on 26 March 2020, so as to shore up liquidity and strengthen its balance sheet. Group CEO Goh Choon Peng said during the Q4 earnings call that the rights issue will ‘bolster equity in the balance sheet’.

He added that the capital raised will also allow the airline to address near-term operational and cashflow requirements, while still keeping long-term strategic priorities intact.

The first round of renounceable rights issue of new ordinary shares and mandatory convertible bonds (MCBs) – which have been approved – will raise gross proceeds of approximately S$8.8 billion.

An additional issuance of another S$6.2 billion of MCBs has also been proposed and is subject to approval at an upcoming extraordinary general meeting.

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4. SIA Group recorded full-year net loss of S$212 million

For the full year ended 31 March 2020, group operating profit fell S$1.01 billion year-on-year to S$59 million, with the operating performance from January to March 2020 eroding the otherwise improved performance of the first nine months of the financial year.

Group net loss for the March ending quarter came in at S$732 million, down from a net profit of S$203 million in the same period a year prior.

Consequently, group net loss for the full 2019/2020 fiscal year fell to S$212 million, a reversal from the S$683 million net profit recorded in Q4 of FY2018/2019.

Breaking down by company, the parent airline company – Singapore Airlines – recorded an operating profit of S$294 million for the year, while regional flight arm Silkair and low-cost arm Scoot suffered operating losses of S$112 million and S$198 million respectively.

SIA Engineering – which reported earnings last week, saw an operating profit of S$68 million.

The board has decided not to propose a final dividend for 2019/2020. Total dividend for the year is S$0.08 per share, from the interim payment on 27 November 2019. SIA Group has a five-year dividend average of S$0.23 per share.

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