Ahead of Singapore Airlines ’ (SIA) 1QFY2025 ended June results, CGS International’s analyst Raymond Yap is keeping his “hold” call with an unchanged target price of $6.78. The analyst notes some upsides and downsides to the stock.
Yap says that SIA’s operating performance for both pax and cargo “looks good”. As such, he forecasts SIA to report an operating profit of about $520 million, representing a “small” dip of 7% q-o-q, as he pencils in higher unit costs q-o-q. This may be significantly offset by his expectations for higher unit revenues at both the pax and cargo businesses, he adds.
“We forecast 1QFY2025 patmi of about $490 million (-13% q-o-q), due to a possible normalisation of the effective tax rate from 4QFY2024’s low levels, when SIA probably utilised some of Scoot's carry-forward losses,” he notes.
The analyst notes that passenger load performance for SIA was underpinned by strong demand for the airline, as well as loads. The combined SIA and Scoot passenger loads saw 0.4% q-o-q higher revenue passenger kilometres (RPK) demand and 0.4% q-o-q higher passenger load factor (PLF) in 1QFY2025, likely due to the June school holidays.
Singapore Airlines’ operating performance improved q-o-q, with RPK up 2.3% q-o-q and PLF up 1.4% q-o-q to 86.4%, which Yap suspects likely helped keep its pax yields steady q-o-q at 11.9 cents.
Scoot saw a weaker result q-o-q with RPK down 5.5% and its PLF down 2.7% to 89% due to the flight disruptions in May and Jun caused by Pratt & Whitney engine issues faced by its A320neo fleet which may have caused negative publicity. “We expect Scoot’s pax yields to have fallen 5.7% q-o-q to 6.6 cents,” he adds.
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“Still, Scoot’s operations are much smaller than SQ’s, and if it kept its 1QFY2025 yields steady q-o-q, the pax business might still be higher q-o-q,” Yap says.
Yap notes that the 1QFY2025 average air freight rates for Hong Kong to the US rose 14% q-o-q, while Hong Kong to Europe rose 10% q-o-q. He believes this is due to export cargoes being frontloaded to avoid US tariffs on Chinese good and to circumvent port congestion in China and Singapore due to longer shipping distances to Europe via the Cape of Good Hope.
“We pencilled in a modest 7% q-o-q increase in cargo yields for SIA, given that SIA has a mixed portfolio of various cargo routes,” he says.
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With stronger-for-longer pax and cargo yields and lower-than-expected unit costs as key upside risks, and rise in fuel costs as downside risks, Yap remains neutral on the counter with unchanged estimates.
As at 11.45am, shares in SIA are trading 2 cents higher or 0.282% up at $7.11.
