Singapore Airlines posts record S$1.12bn Q1 loss: Where next?

SIA share price: What’s the latest?

Shares of Singapore Airlines (SIA) Group (SGX: C6L) fell 1.12% on Wednesday 29 July 2020, the same day that the company released Q1 results for its 2020/2021 financial year.

SIA shares closed Wednesday’s session at S$3.53 each, just prior to the earnings update.

IG’s market analysis shows that ‘sells’ form 62% of all trades on the SIA counter so far this week. Additionally, 95% of clients currently hold a ‘long’ (buy) position on the market.

SIA Group posts a S$1.23 billion drop in Q1 net profit

The group reported a net loss of S$1.12 billion in the first quarter of fiscal 2021, its highest ever on record. This represents a year-on-year decline of S$1.23 million.

The actual net loss was worse than what analysts had projected at S$330 million, based on Refinitiv consensus data.

Group revenue also fell 79.3% to S$851 million in Q1 2021, as passenger carriage fell by an average of 99.5% year-on-year across all three of the group’s airlines – namely Singapore Airlines, SilkAir and Scoot, as Covid-19 wiped out air travel demand and traffic.

The national carrier also attributed the net loss to weaker operating performance, as well as the financial impact of S$127 million (one-time charge) from the liquidation of NokScoot in June 2020.

The group posted an operating loss of S$1.04 billion for the quarter, a decline of S$1.24 billion from Q1 2020’s operating profit of S$200 million, largely due to mark-to-market fuel hedge losses of S$464 million.

On the balance sheet front, the group’s shareholders’ equity was S$17.6 billion, an increase of S$8.3 billion as compared to 31 March 2020. Debt-equity ratio fell from 1.27 times to 0.68 times.

Since the start of the year, SIA Group has increased its liquidity by approximately S$11 billion from a rights issue, financing on its A350-900 and 787-10 aircraft, as well as new lines of credit and short-term unsecured loan.

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SIA says passenger capacity to reach 7% of pre-Covid-19 levels in Q2

The group also reiterated the outlook provided in an earlier circular, stating that ‘the recovery trajectory in international air travel is slower than initially expected’, and will take between two to four years for passenger traffic numbers to return to pre-pandemic levels.

As such, SIA group projects that passenger capacity by the end of the next reporting quarter (Q2 FY2020/2021) will be approximately 7% of pre-pandemic numbers.

In the longer term, the group forecasts that overall passenger capacity may reach less than half of its pre-Covid-19 levels by the end of FY 2020/2021.

For now, the airline says it will continue to ‘pursue cost management measures and will also explore additional means to shore up liquidity as necessary’.

Some of these include reviewing its fleet size based on its needs, as well as negotiating with aircraft manufacturers to adjust delivery orders and payment schedules to reduce near-term cash outflows.

SIA says it has reached an agreement with Airbus ‘on some of these matters’, while discussions with Boeing are ‘ongoing’.

Where do analysts see SIA share price going next?

The SIA stock has received an average rating of ‘hold’ from 12 investment brokers, according to a Refinitiv poll.

Earlier this month, JP Morgan analyst Karen Li reiterated an ‘underweight’ rating on the SIA stock, over concerns of the group’s associated Covid-19 capacity dilution impact, as well as potential challenges in ramping its return profile back up in the medium term.

She thus maintained a ‘cautious view on SIA’s near-term operational outlook’, noting that the airline group’s capacity cuts, coupled with its oil hedge position, ‘could lead to meaningful losses near-term, particularly given the current low oil price environment’.

In addition, she gave SIA a share price target of S$4 per share, based on a target price-to-book multiple of 0.55x that she said is in line with trough-level valuations.

Reversely, Li said that downside catalysts include a faster-than-expected recovery in travel demand/consumer confidence post-Covid-19 and a rapid recovery in oil prices in the near term.

Meanwhile, Bloomberg Intelligence aviation analysts James Teo and Chris Muckensturm estimated in a 15 July note that SIA’s Q1 net loss as well as ‘drag’ from S$124 million in one-off costs due to the liquidation of its NokScoot joint venture in Thailand.

They added that realised fuel hedging losses for the quarter could rise sharply to S$570 million, with oil prices falling below US$30 per barrel for most of April and May.

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