SIA share price: 4 key considerations ahead of Q4 earnings

When will SIA Group’s FY 2019/2020 financial results be released?

National carrier Singapore Airlines (SIA) Group is set to announce its fourth quarter earnings for the three months ended 31 March 2020, on Thursday 14 May 2020.

Here are four things that investors should know ahead of the upcoming financial report.

1. Net loss for full 2019/2020 financial year expected

The company provided the following guidance for the 2020 financial year in a Singapore bourse filing dated 08 May 2020:

‘The COVID-19 pandemic continues to have a severe impact on air travel, as border controls and travel restrictions remain in place around the world. This has affected the entire global aviation industry, and the SIA Group has not been spared either, with the impact on the SIA Group exacerbated by the lack of a domestic market for it to fall back upon.

To address this collapse in demand, SIA and SilkAir have extended their combined capacity cuts of approximately 96% until the end of June 2020, while Scoot is expecting capacity cuts of approximately 98%. The collapse of fuel prices in March 2020 has led to fuel hedging losses on contracts maturing in the final quarter of FY2019/2020.

The unprecedented scale of the capacity cuts by the SIA Group as a result of COVID-19 has also resulted in the SIA Group being in an over-hedged position with respect to the expected fuel consumption for FY2020/2021.

Accordingly, the surplus hedges need to be classified as ineffective under applicable financial reporting standards and the marked-to-market losses as at 31 March 2020 will be recognised in the Profit and Loss statement for FY2019/2020.

Accordingly, the SIA Group expects to report a material operating loss for the final quarter of FY2019/2020. With the benefit of the strong results for the first nine months of the financial year, the SIA Group expects to report a small operating profit, but a net loss, for full year FY2019/2020.’

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2. Operating cashflow to remain negative

The group went on to add in the note: ‘Given that we currently have not seen any definitive abatement of the COVID-19 pandemic, the SIA Group currently expects operating cashflows to remain negative during the ongoing quarter (April to June 2020).’

It stated that with fuel prices continuing to be weak since the beginning of April 2020 to date, additional fuel hedging losses may be expected in the first quarter of FY2020/2021.

Given the uncertainty in the market, the group has decided to take a pause, and plans to monitor developments closely before entering into any additional hedges.

Meanwhile, on the recent announcement of Virgin Australia entering into voluntary administration, SIA says it ‘has no requirement or obligation to provide capital to Virgin Australia’.

‘We have been equity accounting for our share of losses in Virgin Australia. As at 31 December 2019, our carrying value was zero and we have no exposure to further losses incurred by the company. We have no outstanding loans to the airline,’ the airline stated.

3. Measures to shore up liquidity

SIA stated that it continues to undertake steps to contain costs and conserve cash, including capacity cuts to match demand, and pay cuts of up to 30% taken by the entire management team with effect from 01 April 2020.

The Board of Directors has also volunteered a 30% cut in fees to show solidarity. Unions have also agreed to staff cost-cutting measures, including varying days of no pay leave through several schemes, hiring freeze, deferral of non-essential expenditure projects and imposition of tight controls on discretionary expenditure.

The company is also currently in negotiations with aircraft manufacturers to adjust its delivery stream for existing aircraft orders and with various suppliers to reschedule payments, while also balancing that with its longer term fleet renewal programme.

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. The first day of ex-rights trading was Wednesday 06 May 2020.

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4. SIA share price analysis and prediction

In terms of share price, SIA Group shares are down 51.7% year-to-date, with most of the drop having occurred between March and April 2020 during the peak of the coronavirus outbreak and the Saudi-Russia oil price war.

The average 12-month share price target for SIA based on four analyst estimates is S$5.86 per share. All four rated the SIA stock a ‘hold’.

As at 16:45 SGT on 08 May 2020, SIA shares are trading at S$4.40 per share, based on live IG trading data.

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