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EQUITY RESEARCH

Company Report

Singapore

Passenger Airlines

Singapore Airlines HOLD

June 6, 2023
On cloud nine
Price: SGD 6.60 > Further near-term travel demand recovery supported by peak travel season in the
Bloomberg: Northern hemisphere and more meaningful outbound travel from China.
[SIA SP]
> Strong brand image lends greater resilience against normalising demand and prices.
Market Cap:
USD 14,600.00 m > Risk-reward profile has moderated, with much of recovery having been priced in.
Outstanding Shares: > Singapore Airline’s (SIA) share price has performed well, rallying 20.2% year to date
2,970.58 m (YTD) as of last close price on 1 Jun 2023, surpassing pre-pandemic levels and hitting
Six Month Avg. fresh 52-week highs.
Daily Trading vol.
(USD m): 20.57 > Much of the outperformance and market exuberance came within the past month after
SIA announced a record revenue of SGD17.8b for FY23 (financial year ending 31 Mar
52 week High/Low: 2023).
SGD 6.93 / SGD 4.99
> Group operating performance and net performance also made a turnaround to profit,
coming in at a record SGD2.7b and SGD2.16b respectively. Going forward, near-term
travel demand remains more robust than expected. SIA’s commitment to service
quality could differentiate it from competitors and allow it to defend its market share
with greater success.

> While these could translate to further upside, we also note that the regional landscape
is expected to become more competitive as regional airlines return more international
capacity to the market, while a recessionary outlook remains a key overhang for
discretionary travel expenditure. All things in balance, we increase our fair value
estimate to SGD7.18.

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 Equity Research
5 June 2023

Company Update

Singapore Airlines Ada Lim

Equity Research
Singapore | Industrials

Rating HOLD (as at 5 June 2023)

Last Close SGD 6.60
Fair Value SGD 7.18
On cloud nine
• Further near-term travel demand recovery supported Security information
by peak travel season in the Northern hemisphere Ticker (Refinitiv / Bloomberg) SIAL.SI / SIA SP
and more meaningful outbound travel from China Market Cap (USD b) 14.6

• Strong brand image lends greater resilience against Daily turnover (SGD m) 26.9
normalising demand and prices Free Float 45%

• Risk-reward profile has moderated, with much of Shares Outstanding (m) 2,971

recovery having been priced in Top Shareholder Temasek Holdings Pte. Ltd. 55.3%

Investment thesis Price performance chart

Singapore Airline’s (SIA) share price has performed well,
9.00 4,000
rallying 20.2% year to date (YTD) as of last close price on
8.00 3,500
1 Jun 2023, surpassing pre-pandemic levels and hitting 3,000
7.00
fresh 52-week highs. Much of the outperformance and 2,500
6.00
market exuberance came within the past month after 2,000
5.00
SIA announced a record revenue of SGD17.8b for FY23 1,500
4.00
(financial year ending 31 Mar 2023). Group operating 1,000
3.00
performance and net performance also made a 500
2.00 0
turnaround to profit, coming in at a record SGD2.7b and
Jun-18 Jun-19 Jun-20 Jun-21 Jun-22 Jun-23
SGD2.16b respectively. Going forward, near-term travel
demand remains more robust than expected. SIA’s Singapore Airlines Ltd FTSE STRAITS TIMES
commitment to service quality could differentiate it
from competitors and allow it to defend its market share Financial summary
with greater success. While these could translate to
SGD m FY23 FY24E FY25E
further upside, we also note that the regional landscape
Revenue 17,775 18,449 18,802
is expected to become more competitive as regional
airlines return more international capacity to the EBITDA 4,773 5,327 5,351
market, while a recessionary outlook remains a key PATMI 2,157 2,285 2,221
overhang for discretionary travel expenditure. All things EPS (S cents) 35.1 76.7 74.6
in balance, we increase our fair value estimate to DPS (S cents) 38.0 30.7 29.8
SGD7.18.
Key ratios
Investment summary % FY23 FY24E FY25E

• Travel demand remains more robust than expected – EBIT margin (%) 15.1 17.4 16.6
The International Air Transport Association (IATA) ROE (%) 10.2 12.4 12.1
recently announced that passenger traffic demand Dividend yield (%) 5.8 4.7 4.5
remained robust in April. Total traffic (measured in
Source: Refinitiv, Internal estimates
revenue passenger kilometres (RPK)) rose 45.8% versus
April 2022. Globally, air traffic is at 90.5% of pre-Covid
levels, led by domestic traffic which has surpassed
April 2019 levels by 2.9%. Meanwhile, international
traffic rose 48.0% as compared to April 2022, with
carriers in Asia Pacific (APAC) continuing to lead the

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5 June 2023

recovery. In the near term, further travel demand

recovery is likely to be supported by the peak travel
season in the Northern hemisphere, as well as a more
meaningful recovery in outbound travel from China in
the second half of 2023. As easing inflation and
declining jet fuel prices moderate cost pressures,
strong air traffic demand may sustain for a longer
period of time, presenting further upside potential for
airlines.
• SIA’s brand promise remains in-tact – In response to
netizens’ feedback following a trial use of paper
service ware on selected flights and other changes to
its inflight dining experience, SIA recently announced
that it will be dialling back on these decisions and
bringing back appetisers, with management
acknowledging that it could have responded more
promptly. SIA also announced that it will be providing
free unlimited in-flight Wi-Fi to KrisFlyer members flying
in economy and premium economy classes from 1 Jul
2023. We think that SIA’s responsiveness underscores
its commitment to service excellence, and is a long-
term positive for its brand image. This could prove to
be a powerful asset and lend SIA greater
competitiveness and resilience in defending its
market share when demand and prices begin to
normalise. Separately, we also look favourably on
SIA’s planned joint venture with Garuda Indonesia,
which will expand SIA’s network connectivity, in line
with its longer-term strategy.
• Risk-reward profile has become more balanced –
Considering potentially higher-for-longer travel
demand and SIA’s resilience given its strong brand
image, we expect passenger yield to moderate at a
slower pace in FY24E, and update our forecasts to
reflect this. We also raise our target price-to-book
(P/B) ratio from 1.0x to 1.1x, representing one
standard deviation (s.d.) above the five-year
historical average of 0.98x. This lifts our fair value
estimate from SGD6.50 to SGD7.18. At the time of
writing (5 Jun 2023), we believe that much of SIA’s
recovery may have already been priced in given the
recent rally in its share price, and remain cautious that
SIA’s recovery momentum may begin to slow later this
year amidst a more competitive regional landscape
and recessionary outlook.

ESG Updates
• According to research, SIA scores better than its
global peers in terms of social issues due to its robust
compensation practices, higher customer
satisfaction, and on-time performance metrics.
However, SIA’s governance and environment scores
rank below the industry average. As a state-owned
firm, minority shareholders of SIA may face risks of their

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5 June 2023

interests being subsumed by those of the Singapore

government. While SIA operates a relatively young
fleet, and has reduced its carbon emission intensity by
an average of 12% per year, its emission intensity still
exceeds the industry average. However, SIA appears
to have stepped up its environmental efforts to
achieve net zero carbon emissions by 2050, with
continued investment in new generation aircraft,
adoption of low-carbon technology such as
sustainable aviation fuels, and carbon offsetting.

Potential catalysts Investment risks

• Stronger than expected recovery in capacity • Significant further weakening in cargo demand
• Rapid network growth to capture demand, • Increased competition as other airlines ramp up on
especially in APAC international capacity
• Favourable fluctuations in oil prices • Steep moderation in air travel demand and prices

Valuation analysis
Price/Earnings Price/Book EV/EBITDA Dividend Yield (%) ROE (%)
FY24E FY25E FY24E FY25E FY24E FY25E FY24E FY25E FY24E FY25E
SINGAPORE AIRLINES LTD (SIAL.SI) 10.4 15.1 1.2 1.2 4.2 4.6 4.4 3.5 10.9 7.7
CAPITAL A BERHAD (AIRA.KL) 7.0 4.8 - - 6.9 5.8 0.2 0.0 (9.5) (18.5)
THAI AIRWAYS INTERNATIONAL PCL (THAI.BK) - - - - - - - - - -
CATHAY PACIFIC AIRWAYS LTD (0293.HK) 15.3 12.3 0.9 0.9 5.1 5.2 0.0 4.0 6.1 7.2
ANA HOLDINGS INC (9202.T) 17.0 14.0 1.6 1.4 6.5 5.9 1.1 1.7 9.6 10.7

Source: Refinitiv

Price/Earnings chart Price/Book chart

2400.0 1.6

1800.0 1.4

1.2
1200.0

1.0
600.0
0.8

0.0
0.6

-600.0 0.4
Mar-18 Mar-19 Mar-20 Mar-21 Mar-22 Mar-23 Mar-18 Mar-19 Mar-20 Mar-21 Mar-22 Mar-23
PE Avg +2SD +1SD -1SD -2SD PB Avg +2SD +1SD -1SD -2SD

Source: Refinitiv Source: Refinitiv

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5 June 2023

Company overview (as of 15 May 2023)

Company description
The Singapore Airlines Group’s history dates back to 1947 with the maiden flight of Malayan Airways Limited.
The airline was later renamed Malaysian Airways Limited, and then Malaysia-Singapore Airlines. In 1972,
Malaysia-Singapore Airlines split into Singapore Airlines (SIA) and Malaysian Airline System.

Initially operating a modest fleet of 10 aircraft to 22 cities in 18 countries, SIA has grown from strength to
strength, and now distinguishes itself as an international airline group with a fleet comprising of more than 180
aircraft. It currently operates three main business segments. Its Full-Service Carrier segment provides
passenger and cargo air transportation under the Singapore Airlines brand, while its Low-Cost Carrier
segment provides passenger air transportation under the Scoot brand. Its Engineering Services segment
manufactures aircraft cabin equipment, and provides airframe maintenance and overhaul services,
technical ground handling services, and fleet management services.

SIA employs a multi-hub strategy, with a presence in India through Vistara and Thailand through NokScoot.
These investments in airlines outside of Singapore allow SIA to create new markets and tap into new traffic
flows.

FY23 Revenue breakdown FY23 Airline operations revenue breakdown

East Asia (51.7%)

Full Service Carrier (84.3%) Europe (15.8%)

Low Cost Carrier (10.6%) South West Pacific (16.0%)

Engineering Services (4.3%)

West Asia & Africa (8.1%)
Others (0.7%)
Americas (8.4%)

Source: Company Source: Company

Basic earnings per share (S cents) Dividends per share (S cents)

100 38.00
40
57.70
35.60 35 30.00
50
30
0 25
(11.20) 20
(16.20)
-50 15
8.00
10
-100
5 - -
(102.60)
-150 0
FY2019 FY2020 FY2021 FY2022 FY2023 FY2019 FY2020 FY2021 FY2022 FY2023

Source: Company Source: Company

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5 June 2023

Company financials
Income Statement
In Millions of SGD except Per Share FY2019 FY2020 FY2021 FY2022 FY2023
12 Months Ending 31/03/2019 31/03/2020 31/03/2021 31/03/2022 31/03/2023
Revenue 16,323.2 15,975.9 3,815.9 7,614.8 17,774.8
- Cost of Revenue 9,837.5 9,153.3 2,163.7 4,113.7 8,576.0
Gross Profit 6,485.7 6,822.6 1,652.2 3,501.1 9,198.8
+ Other Operating Income -- -- -- -- --
- Operating Expenses 5,478.8 6,772.6 6,171.3 4,175.5 6,463.3
Operating Income or Losses 1,006.9 50.0 -4,519.1 -674.4 2,735.5
- Interest Expense 114.0 218.6 264.7 386.8 416.2
- Foreign Exchange Losses (Gains) -- -- -- -- --
- Net Non-Operating Losses (Gains) 24.3 51.6 173.4 28.8 -317.5
Pretax Income 868.6 -220.2 -4,957.2 -1,090.0 2,636.8
- Income Tax Expense (Benefit) 147.0 -50.8 -673.8 -141.9 473.5
Income Before XO Items 721.6 -169.4 -4,283.4 -948.1 2,163.3
- Extraordinary Loss Net of Tax -- -- -- -- --
- Minority/Non Controlling Interests (Credits) 38.9 42.6 -12.7 13.9 6.5
Net Income/Net Profit (Losses) 682.7 -212.0 -4,270.7 -962.0 2,156.8
Net Inc Avail to Common Shareholders 682.7 -212.0 -4,270.7 -962.0 2,156.8
Abnormal Losses (Gains) -- -- -- -- --
Tax Effect on Abnormal Items -- -- -- -- --
Normalized Income 769.9 -160.4 -2,957.1 -962.1 2,134.0
Basic Earnings per Share 0.4 -0.1 -1.4 -0.3 0.4
Basic Weighted Avg Shares 1,679.5 1,681.5 2,965.0 2,967.5 6,058.4
Diluted EPS Before Abnormal Items 0.4 -0.1 -1.4 -0.3 0.4
Diluted EPS Before XO Items 0.4 -0.1 -1.4 -0.3 0.4
Diluted EPS 0.4 -0.1 -1.4 -0.3 0.4
Diluted Weighted Avg Shares 1,686.8 1,681.5 2,965.0 2,967.5 6,058.4

Profitability Ratios
FY2018 FY2019 FY2020 FY2021 FY2022 FY2023
12 Months Ending 31/03/2019 31/03/2020 31/03/2021 31/03/2022 31/03/2023
Returns
Return on Common Equity 5.22 -1.88 -33.87 -5.02 10.20
Return on Assets 2.56 -0.53 -12.02 -2.20 4.43
Return on Capital 11.79 10.34 8.30 6.26 5.84
Return on Invested Capital 12.20 - - - 9.74
Margins
Operating Margin 6.17 0.31 -118.43 -8.86 15.39
Incremental Operating Margin 0.63 0.05 -378.40 0.07 -1.74
Pretax Margin 5.32 -1.38 -129.91 -14.31 14.83
Income before XO Margin 4.18 -1.33 -111.92 -12.63 12.13
Net Income Margin 4.18 -1.33 -111.92 -12.63 12.13
Net Income to Common Margin 4.18 -1.33 -111.92 -12.63 12.13
Additional
Effective Tax Rate 16.92 - - - 17.96
Dvd Payout Ratio 52.23 -44.71 - - 106.74
Sustainable Growth Rate 5.19 -1.88 - - 10.10

Credit Ratios
FY2019 FY2020 FY2021 FY2022 FY2023
12 Months Ending 31/03/2019 31/03/2020 31/03/2021 31/03/2022 31/03/2023
Total Debt/EBIT 6.24 15.05 -6.24 -22.82 5.70
Net Debt/EBIT 3.37 11.08 -2.74 -2.22 -0.52
EBIT to Interest Expense 9.36 3.58 -8.68 -1.78 6.47
Long-Term Debt/Total Assets 21.06 25.60 34.43 29.83 24.79
Net Debt/Equity 0.30 0.98 0.42 0.09 -0.05
Source: Refinitiv

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 Equity Research
5 June 2023

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