Singapore Airlines share price: where next after strong Q3?

The Singapore Airlines (SIA) Group saw share price ascend 0.7% on Monday 17 February, after posting solid third quarter results for its 2019/2020 fiscal year last Friday 14 February.

Group revenue for the quarter was at a record high of S$4.47 billion, which the company attributed to initiatives launched as part of a three-year ‘transformation plan’ first announced in 2017.

Operating profit increased 15.7% year-on-year by S$61 million to S$449 million. This translated to a group-wide net profit improvement of S$31 million (+10.9%) to S$315 million.

For the nine months ended 31 December 2019, group operating profit rose S$48 million (+5.9%) to S$862 million, with net profit up S$40 million.

Earnings per share for Q3 also came in at S$0.27 versus S$0.24 a year ago, with no dividends announced for the period.

Breaking down the earnings by carrier

Singapore Airlines

Operating profit for the flagship airline – the eponymous Singapore Airlines – rose S$44 million or 11.9% year-on-year to $413 million. Total revenue was up S$120 million, predominantly due to a 8.2% growth in passenger flown revenue on the back of a 9.7% increase in passenger carriage.

SilkAir

Regional arm SilkAir recorded an operating profit of S$7 million, flat against last year. During the quarter, capacity for the carrier fell 8.2%, primarily attributable to the grounding of the 737 MAX 8 fleet as well as the progressive transfer of routes to Scoot. However, traffic fell by a smaller extent of 2.9%, which led to an improvement in passenger load factor of 4.4 percentage points.

Scoot

Low-cost carrier Scoot registered an operating profit of S$4 million for Q3, S$3 million higher than a year ago. Passenger flown revenue increased by 6% or S$26 million, supported by higher passenger traffic of 6.8%.

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Group outlook for the rest of FY19/20: ‘significant challenges’

The group acknowledged in its financial results release that the growing scale of the coronavirus outbreak presents ‘significant challenges’ to the business.

It revealed that demand for services to Mainland China has been severely affected. The flagship airline and SilkAir have drastically reduced frequencies on all Mainland China routes for February and March 2020, while Scoot has suspended all flights to Mainland China until 28 March 2020 (end of the Northern Winter 2019/20 operating season).

Amidst this challenging environment, the group says it will be ‘making appropriate network adjustments’ and ‘managing costs tightly’.

SIA Group added that volatility in fuel prices is also likely to persist, in view of recent geopolitical tensions and demand-side uncertainties in the global oil market. However, it also noted that it has hedged 79% of its fuel requirements in MOPS at a weighted average price of US$76 for the fourth quarter, which it says should help to stabilise fuel costs.

On the positive side, the company stated that the ongoing three-year ‘transformation programme’ has strengthened the group’s revenue-generating capabilities and driven operational efficiencies while maintaining high service standards.

‘At the same time we, will continue to pursue ongoing strategic initiatives including the integration of the parent airline company and SilkAir, growing the low cost airline Scoot, investing in the Indian joint-venture Vistara, and developing new sources of revenue such as KrisShop. These will further strengthen the foundation for future growth and success,’ the company outlined.

What are analysts saying?

Even prior to this latest guidance from SIA Group, analysts were already predicting a fall in travel demand and net profits for the airline company.

Raymond Yap, senior analyst at CGS-CIMB, said on 05 February that he expects SIA to ‘report net losses for the next half year from the Wuhan viral epidemic as demand for flights to China and non-China destinations are hurt’.

He gave SIA stocks a ‘hold’ rating and a price target of S$8.46, down from S$10 per share previously.

In light of the health crisis, UOB Kay Hian analysts also downgraded the stock to ‘underweight’ with a share price target of S$9.10, on the prediction that the airline’s passenger traffic numbers will decline by 10% from February to end-March, and that FY20 net profit will fall by 29%.

The group's share price is down nearly 4.8% since the start of the year.

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