Operating earnings only improved marginally by 13% to S$259m. This was led by SIA (+37% to S$256m), lower losses of S$100m vs S$167m a year ago for SIA Cargo, offset by a 64% decline in EBIT from Silkair to S$35m, 9% decline from SIA Engineering to S$116m and wider losses at Scoot. Meanwhile, SIA’s share of Tigerair’s losses increased S$109m to S$118m. Cut FY15 earnings by 29% on lower yield assumptions.
SIA’s underwhelming results was mainly a result of weak yields across all segments, and assuming modest improvements amidst a global recovery that remains fragile, SIA’s profitability is expected to remain fairly muted. We are projecting ROEs of 4% for FY15 and 5.7% for FY16, with potential for downside risk if yields decline even further than expected. The Group’s balance sheet remains strong with a net cash position of over S$3.50 ps.
Downgrade to HOLD, given the still challenging outlook and that our investment thesis of SIA paying out a larger portion of its cash hoard to reward shareholders failed to materialise. Our TP is based on 0.9x FY15 P/BV, which is c. -1 SD from its mean and fairly reflects the muted earnings outlook of SIA.
Price Target : 12-Month S$ 10.12 (Prev S$ 11.40)
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