Following Singapore Airlines C6L ’ (SIA) 1QFY2025 ended June results, analysts at Maybank Securities and PhillipCapital have kept their respective “hold” and “reduce” calls at respective reduced target prices of $6.55 from $7.10 previously and $5.30 from $5.91 previously.
Maybank’s Eric Ong notes that the group’s net profit of $452 million missed his expectations at 23% of his full-year estimates. SIA’s net profit also fell short of consensus’ expectations at 22% of its full-year estimates.
Operating profit during the period also fell 37.7% y-o-y to $470 million, due to lower passenger and cargo yields, an increase in net fuel cost on higher volumes uplifted and an 8.1% rise in fuel prices.
Ong writes in his Aug 1 report: “We cut our FY2025 to FY2027 forecasts by 15% to factor in more conservative yield assumptions and higher operating expense, partly offset by a lower tax expense.”
In the period, SIA’s passenger flown revenue rose 4.1% y-o-y to $3.83 billion, thanks to the 13.8% increase in passengers carried. However, Ong notes that passenger yields “fell more than expected” at 4.6% y-o-y or 4.3% q-o-q, and that the group is now focused on sustaining a healthy passenger load factor.
“While demand for travel is expected to stay healthy in coming months, pax yields are likely to continue trending downward as more capacity enters the market, particularly in Asia Pacific (APAC). This would hurt low-cost carriers like Scoot more due to fierce price competition, we believe,” writes Ong.
See also: OCBC, citing potential recovery, initiates coverage on Nanofilm with tentative 'hold' call
The flag carrier’s cargo business swung into operating profit sequentially on improved load factor with a 5.9 percentage points (ppts) y-o-y rise to 57.7%, thanks to robust e-commerce flows and stronger demand for air freight due to the Red Sea issue and port congestion.
On this Ong writes: “We understand that SIA’s cargo network serves a broader mix of routes and destinations that do not necessarily see rates rise as much as other APAC carriers. On a y-o-y basis, cargo yield slid 19.1% amid increased bellyhold cargo capacity even though it still hovers about 18.4% above pre-pandemic levels.”
Meanwhile, SIA and Garuda Indonesia look set for a commercial joint venture (JV) pact, receiving approval from authorities in July. Ong understands that this alliance could include JV sharing flights between Singapore and Indonesia, as well as joint sales and marketing initiatives.
See also: Macquarie revises Singapore earnings growth for FY2024 to 7% from 3%
A partnership with Riyadh Air was also signed in June, which aims to explore opportunities for greater connectivity on each other’s services, and to work on other potential areas of commercial cooperation.
For PhillipCapital’s Liu Miao Miao, SIA’s net profit for the 1QFY2025 similarly did not meet expectations, only forming 20% of the analyst’s full-year forecast.
On the period, Liu writes: “SIA achieved a record first-quarter load factor of 87.4%. Revenue per available seat kilometre (RASK) for 1QFY2025 remained at 117% of the pre-Covid level and achieved a record high, excluding the two exceptional years post-Covid.”
Despite this, she continues that RASK tracked “below last year” as a result of the increasing capacity and heavy promotional events in the industry. She adds that with more Chinese carriers entering the Asian market compared to pre-Covid levels, yields could compress further in the remaining FY2025.
“We believe earnings are normalising in the face of the fading pent-up demand. We pencil in 2% revenue growth in FY2025 as more capacity has been added,” adds Liu.
The analyst also sees the group’s cargo load factor to sustain, as several major markets, such as Indonesia and China have eased their air restrictions, and four more destinations have been added for SIA and Scoot, respectively, compared to the same time last year. Four cargo destinations have also been added to the group’s network.
Overall, Liu expects SIA’s net profit to decrease by around 33% y-o-y in the FY2025. “Although higher volume did contribute to rising fuel costs, higher prices and lower hedging gains suggest costs will remain elevated given the low-cost hedges taken during Covid-19 have expired. Meanwhile, other expenses are creeping up due to inflationary pressures, such as higher handling charges and passenger costs, as Sats’ contract has just been renewed.”
For more stories about where money flows, click here for Capital Section
On SIA’s outlook, despite more routes to China with SIA now operating 28 weekly services to Beijing, the weaker macroeconomy continues to impose headwinds on outbound demand from China.
“Additionally, we expect further downtime and costs to accrue for Scoot as six of the A320neo fleet are experiencing prolonged repair times, resulting in flight cancellations. Despite SIA's efforts to mitigate this by leasing additional aircraft, costs may continue to add pressure on the already depressed revenue per kilometre (RPK) and yield,” writes Liu.
As at 12.25 pm, shares in SIA are trading 1 cent lower or 1.60% down at $6.14.
