“The +0.5 s.d. peg reflects our recognition for SIA's outstanding track record demonstrated during the pandemic and the likely improved long-term outlook given Singapore's new visa-free arrangement with China,” explains Chen.
For the full-year, Chen expects a final dividend of “at least” 28 cents, thanks to his FY2024 full-year earnings estimate of $2.66 billion excluding the Vistara disposal gain, which is a “record high” in SIA's history.
He writes: “We reckon that SIA will at least sustain the same 28 cents final dividend as last year and has the potential to pay out more. Assuming that the 28 cents final dividend is maintained for FY2024 with an unchanged 10 cents interim dividend for 1HFY2025, SIA's current price implies a 6.0% yield in the next 12 months. “
Operating updates
See also: UOBKH raises TP on SIA to $6.22, FY2026 earnings to see lift on fuel cost savings
In his Mar 19 note, Chen observes that passenger (pax) load for the month beat his projection by 4.3%, reaching 88.0% of pre-pandemic levels due to the stronger-than-expected pax load factor of 86.3%, which he attributes to the China-Singapore arrangement.
“Pax capacity recovery was broadly in line with our expectation at 86.2% of pre-pandemic levels. Adjusted for differences in length of months, February pax capacity and load were at 92.1% and 94.1% of pre-pandemic levels, respectively,” writes Chen.
Cargo load in the month similarly exceeded his projection by 6.8% on the back of strong e-commerce demand, which supported cargo load factors during the “seasonally slow” February at 56.7%.
Meanwhile, cargo capacity and load stood at 95.3% and 97.9% of their respective pre-pandemic levels.
As at February, SIA's passenger network covered 121 destinations which was flat m-o-m, compared with 137 destinations before the pandemic.
Notably, Chen’s estimated 4QFY2024 net profit of $553 million factors in a minor 1% q-o-q moderation in pax, a 10% q-o-q decline in cargo yields and a 1% q–o-q decline in jet fuel cost per barrel.
“Our earnings estimates have yet to include a $1.11 billion non-cash accounting gain from the potential deemed disposal of Vistara as part of the proposed merger between Vistara and Air India,” writes Chen.
Earnings revisions
Following this, the analyst has raised his FY2024 earnings forecast by 1.9% to reflect February's stronger operation data.
Chen writes: “Our updated FY2024 headline net profit forecast for SIA at S$3.77 billion includes the aforementioned $1.11 billion accounting gain from the Air India-Vistara merger, excluding which our FY2024 earnings estimate would have been $2.66 billion.”
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He adds that his FY2025 and FY2026 net profit forecasts “are intact” at $1.58 billion and $1.09 billion respectively.
“Our declining earnings forecasts in FY2024 to FY2026 reflect our expectations of pax yield moderation as competition catches up,” notes Chen.
Key risks noted by him include a weaker-than-expected macroeconomic environment dampening air travel and air cargo demand, as well as competition catching up faster than expected.
As at 12.10 pm, shares in SIA are trading four cents lower or 0.63% down at $6.32.
