Thursday, August 6, 2009

Singapore Airlines - Quick Comment: Marginal EPS Expected for 1Q09

Impact on our views: Since the beginning of 2009, SIA’s share price has sharply trailed the local STI index despite the stock price rising by about 20% for that period. We believe passenger yield would fall sharply from here for SIA, negatively affecting the carrier’s profitability for this fiscal year, and our EPS estimates could be at risk, despite being below mean market consensus of S$0.45, down from S$0.53 in May 2009 for F2009.

What's new: We expect SIA to report a marginal EPS of S$0.02 (down 93%), for F1Q09 on July 30. Our almost breakeven operating profit of S$8 mn is based on a passenger yield decline of 9%. If passenger yield were to decline by more than 10%, we believe that we could see an operating loss for F1Q09, which would likely negatively surprise the market, potentially triggering profit taking on the stock after the result.

SATS Distribution & Timetable: Potential dividend in specie of S$1.66 (based on SATS share price of S$2.28); AGM (July 31), Ex-Dividend date (Aug 13); Dividend Distribution (Aug 28). We view the sharp rise in SATS share (up more than 50% since the May 15 announcement) as a key support for SIA’s share price near-term.

Investment thesis: Our price target of S$9.30 is based on 0.8x our F2009e BV. Upside risks to our target include: 1) a positive earnings surprise due to potential fuel hedging gains or marginal decline in premium and leisure yields. 2) Industry consolidation that would increase market share for the remaining airline players and lead to stability in pricing power.

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1 comment:

John said...

Now that SIA is ex SATS rights don't ustand its price still $12 plus? Wud exp it to drop about $2 to discount for the SATS rights and thus bring price closer to your target price. Wud appre any comments