SIA - 4QFY09 Results – Flying Without Wings

Target S$8.50 (0.7x P/B): SIA's recent 30% price rally should be clipped post a 4Q09 core loss of S$96m (reported profit S$42m on S$138m tax write-backs, 3Q09: S$337m); FY09 DPS cut to S$0.40 (FY08: S$1). Near-term earnings visibility is low given weak passenger demand/cargo volumes, yield pressure, and fuel hedging losses. New FY10E profit S$400m (EPS S$0.34): capacity cuts, lower fuel costs offset by yield pressure as premium traffic demand may >12 months to recover. Our view of a Singapore STI recovery (target 2400) and a proposed SATS dividend in specie (worth S$1.13/SIA share) may provide support, but stock performance should be capped until fundamentals improve.

SATS dividend in specie: Subject to EGM approval SIA plans to divest its 81% of SATS via dividend in specie. Shareholders receive up to 0.73 SATS shares for 1 SIA share. SATS has renewed its SIA service contract for 3 years from 1 Oct 2009. SATS contributed S$118.3m (S$0.10/shr) to FY09 SIA group profit. At a S$1.55 share price, 0.73 SATS share is worth S$1.13 per SIA share.

FY2010 estimate cut 57%: New FY10E profit S$400m on 11%yoy passenger traffic fall, 9%yoy cargo fall, slump in yields. Costs down 16%yoy on capacity cuts, lower fuel cost, but still incurring hedging losses. FY2010 estimate 38% below consensus; visibility likely to remain low near term before some demand recovery later in the year. FY10E DPS S$0.35. Introducing FY2012 estimates.

4Q09 profit S$42m (-88%qoq): Revenue S$3.3bn -20%qoq, traffic - 16%qoq, yields (passenger S$0.118/RPK, cargo S$0.292/ FTK). Costs S$3.3bn -12%qoq (fuel -22%qoq). Operating loss S$28m.

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