SINGAPORE (July 29): Maybank KimEng is keeping its “hold” call on Singapore Airlines with a $10.85 target price as the group is “not exactly in the pink of health”.
While core net margin was a paltry 4% in 1Q, the brokerage warns the cargo business unit could quickly turn as there is no fundamental recovery in the freight market.
See: Singapore Airlines 1Q earnings fall 8.4% to $235.1 mil despite improved revenue
SIA’s 1QFY18 core net profit was above Maybank and consensus expectations. The passenger business performance was challenging as expected, but the cargo business surprised positively and delivered solid profit.
“SIA appears to be handling the challenging market condition better than our initial expectations,” says Mohshin Aziz in a Friday report.
In 1Q18, core net profit came in 49% higher y-o-y at $155.6 million. This is 38% of Maybank’s and 40% of consensus full year forecasts. There was a one off compensation of $70 million relating to changes in aircraft delivery slots.
While the parent airline has performed strongly with 22% y-o-y growth in operating profit, Silkair and Budget Aviation Holdings both struggled and were barely breakeven.
Aziz says he is impressed with the company's cost management in 1Q18. Unit cost grew by 1.4% y-o-y despite the fact that jet fuel prices rose by 8.3% y-o-y. There is also scope for further unit cost reduction given that fuel price have receded and the benefits of the induction of new cost efficient aircraft.
Update: Shares in SIA closed 13 cents at $10.28 on Friday.
