SINGAPORE (Feb 9): Maybank Kim Eng is estimating 2% lower 3Q18 core net profit of $259 million for Singapore Air but in line with its estimate.
"Our earnings forecasts, target price of $10.95 pegged to its 0.93 times long-term book value mean and 'hold' are unchanged," says analyst Mohshin Aziz in a Thursday report.
Mohshin says management have so far done very well in filling up aircraft. Overall traffic in 3Q18 grew by 5.9% y-o-y and load factor rose by 2.8ppt y-o-y to 73.5%. This is the best overall load factor performance since 2010.
The analyst sees better capacity discipline in the long-haul market as load factors have held up well and there is scope for yield improvement as the industry tries to offset the recent rise in fuel prices by raising fares.
"We think passenger yields will be a modest 1% decline y-o-y but cargo yields will be very strong with 9% y-o-y growth. Overall yields (passenger + cargo) should be fairly unchanged y-o-y," says Mohshin.
The analyst further notes that Asian carriers have been very clinical in dispersing capacity in 2017 while outlook statements by industry executives suggest 2018 capacity output will be equally modest.
In addition, the recent rise in fuel prices will sway airlines to push for higher ticket prices, thus potentially reversing the industry passenger yield downtrend since 2014.
SIA has hedged 47% of its FY19 fuel requirements at US$55/bbl and this will provide some cost advantage relative to competitors.
"The company is trading at 0.92 times FY18 book, which is close to our fair value of $10.95. We don’t foresee any obvious catalyst to re-rate the stock in the near term and hence maintain 'hold', " says Mohshin.
As at 2.41pm, shares in SIA are down 16 cents at $10.70.
