$C6L.SG$ Phillip Securities maintained reduce on SIA and low...

Phillip Securities maintained reduce on SIA and lower tp to 5.45 from 6.80.

1H24 net earnings beat their estimates, at 82% of their FY24e forecast. It surprised them with an 18.8% YoY lower fuel bill despite the higher capacity and a SGD244m gain from fuel hedging. They raised their FY24e estimates by 14.3% to factor in the stronger 1H earnings.

Growth was driven by strong passenger load (+38% YoY), while yields have begun to fall (-8.5%). Cargo remains weak as volume (-6.0%) and yields (-46.2%) were lower, though yields are above pre-Covid levels.

SIA plans to redeem 50% of the remaining Mandatory Convertible Bonds (MCB) for SGD1.71b, bringing total redemption to SGD5.1b for FY24e.

They maintain a reduce recommendation, and lower their tp to 5.45 at 1x FY24e P/B (prev. 1.1x). They have raised their FY24e net profit estimates by 14.3% to factor in the strong 1H. This takes into account an ex-growth operating environment with yields and loads under pressure from increased competition and the fading off of travel demand.

1) Higher passenger load offset decline in yields. Robust demand mainly from leisure travellers lifted passenger loads by 38.0% YoY. This helps to offset the decline in passenger yield such that revenue per available seat-km (RASK) only fell 2.0% YoY to 9.6 cents.

2) Lower average jet fuel price and fuel hedging gain. Average jet fuel price before hedging achieved was 29.2% lower YoY at USD105/barrel, and it booked a hedging gain of S$244mn (1H23: SGD417mn). They had expected its jet fuel price to rise in 2Q in line with the market.

3) Higher net interest income. It booked net interest income of SGD117mn from higher interest rate from net cash of SGD5.2b at end Mar 23.

1) Cargo remains a weak spot. In line with weaker trade flows globally and bigger capacity added from the return of passenger flights, cargo yield fell 46.2% to 41.8 cents/load tonnekm. This is however, still higher than pre-Covid of about 31 cents.

Heightened competition from restoring capacity mainly from the North Asian airlines and a fading off of leisure travel will put pressure on yields. Jet fuel price is trending higher along with higher crude oil prices. They expect capex spending to rise in 2H to meet its target of SGD2.3b for FY24e (1H24: SGD648m). It would also incur cash outlay of SGD5.1b in FY24e for the redemption of MCBs and SGD600m for convertible loan. This would lower interest income in 2H.