SIA net profit falls by 59% amid sharp cost increase: Our Quick Take

Singapore Airlines (SIA) 2Q FY2024/25 earnings highlights

SIA announced its earnings for the second quarter of fiscal year 2024/2025, for the three months ending September 2024. Key highlights include: 

• Operating profit dropped 59.3% YoY to $325M, with net profit falling 59.0% to $290M due to yield pressure and higher costs.
• Passenger flown revenue declined 0.9% despite capacity expansion of 9.7%, with yields down 6.5% and passenger load factor decreasing 2.8 percentage points to 85.8%
• Total expenditure increased 14.7% to $4,454M, driven by higher net fuel costs (+10.6%) and non-fuel expenditure (+16.6%)
• Balance sheet shows reduced cash position of $9.0B (-$2.2B) following MCB redemption, with debt-equity ratio increasing to 0.96x
• Maintained interim dividend at 10 cents per share 

SIA reported a total revenue of $4.78 billion in 2Q 2024/25, reflecting a modest increase of 2% compared to the same quarter last year. 

Passenger demand remained robust, yet the growth in passenger capacity (9.7%) outpaced traffic growth (6.3%). This led to a slight drop in the load factor, signaling underutilisation of available seats. 

The increase in passenger capacity and heightened competition led to decreased yields, meaning SIA earned less for each passenger. 

SIA saw robust demand in its cargo segment, with revenue rising by 8.3%. The cargo load factor improved by 3.7 percentage points, showing strong demand counterbalancing the downturn in passenger yields.

However, the operating profit took a hit, decreasing by $474 million to $325 million, a 59.3% drop year-on-year.

This was driven by a 14.7% year-on-year increase in expenditure to $4.45 billion. 

While fuel prices declined compared to the previous year, an increase in the volume of fuel needed and lower gains from fuel hedging diminished potential cost savings.

Non-fuel expenses rose due to increased capacity and broader inflationary pressures on costs.

The net profit for this quarter was $290 million, a substantial decline of $417 million or 59% from the previous year.

SIA's  debt-equity ratio increased slightly to 0.96x, reflecting more leverage after redeeming Mandatory Convertible Bonds earlier this year.

SIA's cash reserves remained significant at $9 billion after the bond redemption and dividend payments, ensuring liquidity for operational needs and future strategic investments.

SIA continues to set the stage for future growth with key initiatives like the Air India-Vistara merger and a $1.1 billion investment in retrofitting A350-900 aircraft.

Beansprout's Quick Take on SIA's earnings

The results are likely to be viewed as negative by investors. The 59% year-on-year decline in net profit in 2Q FY2024/25 was more significant compared to the 38% decline in the previous quarter. 

It is represents a sharper decline compared to consensus expectation for profit to decline by 30% for FY2024/2025. 

The pressure on passenger yields is likely to persist, in our view. While airline industry capacity growth has been constrained by long delivery lead time for new aircraft, macroeconomic uncertainty and geopolitical risks may lead to slower growth in travel demand. 

SIA's share price has declined by 1.4% year-to-date, underperforming the Straits Times Index (STI) which has risen by 15% over this period. 

SIA currently trades at 1.4x price-to-book, above its historical average. 

On a more positive note, SIA has maintained its interim dividend of S$0.10 despite the sharp decline in profit. Should it maintain its final dividend of S$0.38, the total dividend dividend of S$0.48 would imply a dividend yield of 7.4%. 

Find out how much dividends you would have received as a shareholder of SIA in the past 12 months with the calculator below.  

The consensus share price target of SIA is S$6.845 as of 8 November 2024. This represents a potential upside of 6.1% compared to its closing share price of $6.45 on 8 November.

Related links:

• SIA share price and share price target
• SIA dividend forecast and dividend history

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