Left Brain Right B - the DBS Vickers Securities Equities Research

Regional Equity Strategy 4Q 2009
Singapore Airlines
Bloomberg: SIA SP | Reuters: SIAL.SI
BUY S$13.60 STI : 2,672.60
Price Target : 12-Month S$ 15.25
Potential Catalyst: Improving demand and yield
Analyst
Paul YONG CFA +86 21 6888 3372
paulyong@dbsvickers.com
Stronger prospects ahead
• We expect demand to improve gradually along
with the economy, boosted by the upcoming
opening of Singapore’s two Integrated Resorts
• Load factor and yield should also see an uptrend,
as supply has been trimmed industry-wide
• Key risks: jet fuel costs and pandemic.
• BUY, TP S$15.25, based on 1.4x P/B.
Price Relative
17.40
15.40
13.40
11.40
9.40
7.40
S$
Relative Index
2005 2006 2007 2008 2009
Sing apore A irlines (LH S) Relative STI IN DEX (RH S)
Forecasts and Valuation
FY Mar (S$ m) 2008A 2009A 2010F 2011F
Turnover 15,973 16,063 12,563 12,972
EBITDA 3,998 2,888 2,254 2,986
Pre-tax Profit 2,547 1,337 527 1,238
Net Profit 2,049 1,062 415 974
Net Pft (Pre Ex.) 2,049 923 415 974
EPS (S cts) 173.0 89.5 34.7 80.7
EPS Pre Ex. (S cts) 173.0 77.8 34.7 80.7
EPS Gth Pre Ex (%) 18 (55) (55) 133
Diluted EPS (S cts) 166.7 86.3 33.7 79.2
Net DPS (S cts) 100.0 40.0 25.0 30.0
BV Per Share (S cts) 1,276.8 1,174.6 1,119.3 1,174.2
PE (X) 7.9 15.2 39.2 16.9
PE Pre Ex. (X) 7.9 17.5 39.2 16.9
P/Cash Flow (X) 4.7 6.2 8.4 6.6
EV/EBITDA (X) 3.2 4.9 6.6 4.8
Net Div Yield (%) 7.4 2.9 1.8 2.2
P/Book Value (X) 1.1 1.2 1.2 1.2
Net Debt/Equity (X) CASH CASH CASH CASH
ROAE (%) 13.6 7.3 3.0 7.1
Earnings Rev (%): - -
Consensus EPS (S cts): 15.3 73.3
ICB Industry : Consumer Services
ICB Sector: Travel & Leisure
Principal Business: Singapore Airlines owns and operates SIA and
Silk Air, and has two airline associates (Tiger, Virgin Atlantic). Other
businesses include ground operations (SATS) and aircraft
maintenance operations (SIA Engineering).
Source of all data: Company, DBS Vickers, Bloomberg
203
183
163
143
123
103
83
Demand and yields should improve on healthier
economy and IRs. SIA’s operating statistics in July and
August indicate that the decline in demand has
bottomed and with capacity having been cut by over
12%, load factors have also rebounded to above 78%
in July and August, compared with an average of under
70% in the preceding 5 months. Looking ahead, we
expect both load factor and yield to improve as 1)
demand improves along with economy, 2) excess
capacity has been removed from the industry, and 3)
upcoming Integrated Resorts in Singapore should boost
tourist arrivals, which is positive for SIA.
Earnings to rebound strongly in FY11, key risks
being jet fuel costs and pandemic. Although SIA was
unprofitable in 1Q10, we project a stronger second half
to help SIA into the black for the full year, with net
earnings of S$415m. FY11’s PAT is projected to further
improve, on stronger load factor and yield, to S$974m.
BUY, TP S$15.25. With improving earnings prospects,
we peg our target price for SIA to 1.4x Price-to-Book,
which is at the 50 th percentile of its historical trading
range. This translates to a target price of S$15.25 for
SIA. Catalysts for re-rating include a rebound in
demand, yields and the completion of the upcoming
Integrated Resorts in Singapore.
At A Glance
Issued Capital (m shrs) 1,187
Mkt. Cap (S$m/US$m) 16,137 / 11,407
Major Shareholders
Temasek Holdings Pte Ltd (%) 54.5
Free Float (%) 45.5
Avg. Daily Vol.(‘000) 1,962
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Refer to important disclosures at the end of this report
ed: MY / sa: JC