SINGAPORE (Oct 16): Macquarie Research is maintaining Singapore Airlines at “outperform” with lower target price on higher fuel estimates.
In Sept, SQ, the company’s main brand and key profit driver, carried 5.7% more traffic, outpacing the 1.4% capacity increase, resulting in improved load factor across all route regions.
For 2Q19, Macquarie analyst Azita Nazrene expects strong revenue headline growth of 11%, given strong 9% traffic growth, to be offset by higher cost, as it foots an estimated 35% higher fuel bill. This would result in an adjusted profit after tax of $150 million, down 20% y-o-y.
According to Macquarie, SIA has the most favourable long-term Brent hedges among its Asian airlines coverage but with passenger demand staying resilient and assuming no irrational competition and additional supply, there is a possibility SIA may have to raise fares.
But for FY19E, she expects EPS to fall 12%. Target price has also been cut 6% from $12.50 to $11.70, using 7x 19E EV/EBITDA.
Meanwhile, Nazrene says SIA is trading below liquid break-up value of $9.38 which is a sum of its on-balance sheet aircraft market value -- discounted at 20% -- and deep 30% discount to current market price of SIA Engineering and Virgin Australia.
Year to date, shares in SIA are down 14.2% to $9.16 at 11 times FY20F earnings.
