SINGAPORE (Nov 22): Bookings for Singapore Airlines (SIA) in the coming months are expected to be stronger y-o-y but headwinds continue to persist in the form of cost pressures arising from elevated fuel prices and keen competition, says OCBC Investment Research.

Analyst Low Pei Han is projecting capacity growth in available seat kilometeres for FY19 of 5% for SIA, 4% for SilkAir, 16% for Scoot and 7% for the whole group compared to a year ago.

For 2HFY19, SIA has hedged 58% of its fuel requirements in jet fuel at a weighted average price of US$71, against the current MOPS price of US$87. For FY20, 52% is hedged with 17% at US$79 on average for jet fuel) and 35% at US$56 on average for Brent.

To recap, SIA reported a 5.6% y-o-y rise in revenue to $4.1 billion in 2Q19 and net profit of $56.4 million, impacted by $117.1 million share of losses of associated companies. This was mainly due to the recognition of SIA’s share of loss from Virgin Australia.

Singapore Airlines 2Q earnings fall 81% to $56.4 mil on higher fuel prices

Operating profit was 44% y-o-y lower and if one-off items were to be excluded, it would be 27% lower, mainly due to higher fuel costs.

Flown revenue rose by $422 million, contributed by higher passenger flown revenue and cargo flown revenue. Passenger flown revenue, passenger load factor and passenger unit revenue all grew.

SIA declared an interim dividend of $0.08/share.

OCBC is maintaining its “buy” for SIA with fair value estimate of $10.71 or 0.85 times forward P/B.

Year to date, shares in SIA are down 12.1% to $9.38.

See also: Singapore Air gets four 'hold' calls in wake of weak 2Q results