SIA Q4 preview: 3 things to watch

Singapore Airlines will report its fourth quarter earnings this week. Here are some things for investors to consider.

  • Singapore Airlines Ltd share price rallies 3.7% to S$4.81 a share on Tuesday
  • The blue-chip counter is up 12.7% year to date
  • In light of border re-opening delays, analysts have rated the stock a 'sell'
  • The group, which posted a 76% revenue decline in Q3, will release its full-year results this week
  • Buy and sell SIA stocks with an IG account

Singapore Airlines is scheduled to report financial results for the fourth quarter and full financial year ending 31 March 2021 after trading hours on Wednesday (12 May 2021).

Below are three things to consider ahead of the earnings report.

1. Group capacity at 23% of pre-Covid levels as of March

As at the end of March 2021, group passenger capacity reached 23% of pre-Covid levels, lower than earlier expectations of around 25%.

This number is expected to inch up to around 27% of pre-Covid levels by June 2021, based on modest growth of the passenger network in the coming months.

As at the end of April 2021, flagship carrier Singapore Airlines’ network covered 49 destinations (including Singapore). This followed the re-introduction of Taipei services, as well as the transfer of Medan from SilkAir as part of the ongoing integration of narrow-body operations with the parent airline.

SilkAir’s network was reduced to only three destinations (Cebu, Kathmandu and Singapore). Including Singapore, the combined network for full-service carriers grew from 50 destinations in March to 51 destinations at the end of April.

Scoot, SIA’s low-cost carrier subsidiary, served 19 destinations (including Singapore) as at the end of April with the reinstatement of flights to Macau. Operations to South Asia and Europe remained suspended.

‘As vaccination programmes across the world gain momentum and the Northern Summer travel season commences, the group remains hopeful for a measured recovery in international air travel demand,’ SIA said in its March operating update.

2. Analysts rate SIA ‘underperform’

The blue-chip counter is up 12.7% year to date.

Analyst sentiments published by SGX StockFacts show a consensus rating of ‘underperform’ alongside an average 12-month target price of S$4.41 on the stock.

The price target represents a 8.3% downside from SIA’s traded price of S$4.81 on Tuesday (18 May 2021).

UOB analyst K Ajith earlier this month gave a ‘sell’ call on the stock at a target price of S$4.40, stating that the delay in border re-opening will lead to higher cash burn.

As the second quarter of 2021 beckons, there are still no signs of border re-openings or the formation of travel bubbles, he wrote, adding that border openings would happen only in late third quarter at best.

He believes that under such a scenario, SIA could even tap into the additional S$6.2 billion in mandatory convertible bonds, which is something ‘the market has not factored in’.

Read more: Top 5 Singapore stocks to watch in May 2021

3. SIA’s third quarter revenue shrank by 76%

SIA Group’s passenger carriage shrank 97.6% year-on-year in the third quarter of 2021, due to ‘severely constrained international air travel demand’.

When compared to the second quarter, however, passenger carriage grew 44.8% on the back of a 90.8% increase in capacity for the third quarter.

Group revenue fell S$3.404 billion (-76.1%) year-on-year to S$1.067 billion during the third quarter, as all three passenger airlines within the group recorded a sharp drop in passenger flown revenue due to low traffic.

This was partially offset by improvements in cargo flown revenue, as the global airfreight capacity crunch continued to provide strong support for both load factors and yields.

For the quarter ended 31 December 2020, SIA Group reported a net loss of S$142 million, a deterioration of S$457 million against the same period a year ago.

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