SIA net profit falls by 38%: Our Quick Take

Singapore Airlines (SIA) share price falls sharply

The share price of Singapore Airlines (SIA) fell sharply on 1 August 2024.

From a closing share price of S$6.97 on 31 July, SIA share price fell to a low of S$6.13, before recovering slightly.

This was partly because the SIA traded ex-dividend of S$0.38 on 1 August. 

Excluding the dividend, SIA's share price would still have been much lower, due to the weaker than expected earnings reported by the company.  

Summary of Singapore Airlines (SIA) 1Q FY24/25 earnings

Singapore Airlines (SIA) reported its earnings for the first quarter fiscal year 2024/25 (1Q FY24/25) for the quarter ending 30th June 2024. 

• SIA 1Q FY24/25 net profit fell 38.4% year-on-year to S$452m. 
• Operating profit was 37.7% lower year-on-year, as cost increase outweighed revenue growth.

Passenger and cargo volume rose 9.7% and 23.2% year-on-year, respectively. However, revenue grew at a slower pace (+5.3% year-on-year), led by passenger (+4.1% year-on-year), while cargo was flat. 

Yields fell for both passenger and cargo, as travel demand normalizes and competing carriers restore capacity.

Passenger revenue per available seat-km (RASK) fell 7.2% year-on- year to 8.9 cents. This was the second consecutive quarter of year-on-year decline. 

This was due to lower airfare (a combination of more short-haul routes and cheaper tickets) and load factors. 

Cargo yield was 18.9% lower year-on-year to 36.1 cents per load tonne-km, due to increase in bellyhold cargo capacity as more passenger flights came on stream. 

Still, passenger RASK and cargo yield are 19% and 18% above pre-Covid level in FY20, respectively. Passenger load factors are also about 4% point higher than pre-Covid.

On the other hand, cost escalated by 14.0%, with more capacity added and a 30.1% hike in fuel bill. Jet fuel price was 8.1% higher year-on-year and SIA booked lower hedging gain.

After the redemption of all remaining Mandatory Convertible Bonds (MCBs) at end Jun, net debt to equity as at end-Jun was 20.9%. NAV per share as at end-Jun was S$5.07.

SIA has entered into a strategic partnership with Riyadh Air of Saudi Arabia in June 2024 to explore opportunities for connectivity on each other’s services. 

Its proposed joint venture with Garuda Indonesia has also received approval from the Competition and Consumer Commission of Singapore. These tie-ups are positive steps to gain penetration into these markets. 

The proposed merger of Air India and Vistara has received the approval from Indian National Company Law Tribunal in June 2024. It is still subject to Indian foreign direct investment approval. When this transaction is completed with SIA taking a 25.1% stake in the enlarged Air India Group, we estimate SIA could book an accounting gain of S$1.1b.

Beansprout's take on Singapore Airlines (SIA) 1Q FY24/25 earnings

The results are likely to be viewed as negative by investors. The 38.4% year-on-year decline in net profit was larger than consensus estimate of a 24.2% decline for full year FY24/25 net profit.

The pressure on 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 risen by 6.6% year-to-date, broadly inline with the market. 

The share will trade ex-dividend of 38 cents per share from 1 August 2024. Excluding the dividend, the share is priced at 1.3x price-to-book.

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Related links:

• Singpore Airlines share price and share price target
• Singapore Airlines dividend forecast and dividend history

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