FINCNAE | The SIA Profitable Composite In The Face of Challenges

Singapore Airlines Ltd (SIA) and its budget subsidiary Scoot Pte Ltd have reported a record-breaking net profit for the six months ending Sept 30, 2023 (1HFY2024). The national airline saw a net profit increase of 55% to S$1.44 billion, up from S$926.9 million the previous year, while Scoot turned a net loss of S$89.2 million into a net profit of S$54.6 million. The success of both airlines is attributed to the group's strategy of integration, cross-selling, and distinct market positioning of the two brands. Scoot's CEO, Leslie Thng, maintains that both airlines are profitable and expanding, offering a variety of products and services to cater to different market segments. To avoid overlap and competition between the two carriers, decisions on route deployment are made at the group level. Scoot enjoys a competitive edge, with strong demand across all cabin classes. The financial robustness of SIA instills confidence in employees and partners about the company's financial capacity for payment, investment, and long-term sustainability.


As of the end of October, Scoot, a low-cost airline, has been operating in 68 locations across Asia-Pacific and Europe. The airline's fleet currently consists of 55 aircraft, including 10 Boeing 787-8s, 10 787-9S, 20 A320ceos, six A320neos, and nine A321neos. It has also placed an order for nine Embraer E190-E2 jets, which are expected to be delivered starting March 2024 and will be used to extend its services in Southeast Asia. Sarawak Transport Minister Lee Kim Shin recently revealed that Scoot plans to increase the frequency of flights from Singapore to Kuching and Miri and will also introduce a new route to Sibu next year. Scoot is optimistic about its prospects for 2024, given its solid foundation post-Covid-19 and profitability. SIA CEO Goh Choon Phong anticipates that the demand for air travel will continue to be strong for the remainder of FY2024. He acknowledged that passenger yields had decreased in the second half of this year due to a drop in airfares as airlines increased capacity. However, he is confident that the industry will successfully navigate these challenges.


This year, Scoot has experienced a decrease in yields compared to 2022, largely due to airlines increasing their capacity in the market. This increase in capacity offers customers more options, which in turn puts pressure on yields. However, Goh does not foresee that the lower yields could result in some airlines becoming unprofitable, as was the case in 2019. He is confident that they have the right strategy to continue growing as an organization. SIA anticipates reaching 92% of its pre-pandemic operating capacity by the end of this year and surpassing pre-COVID-19 capacity levels by FY2025. However, supply chain issues, including component and part shortages and delays in aircraft production, have hindered SIA's ability to increase the deployment of its aircraft in response to market demand.


SIA Group has announced its first annual profit since the pandemic for the financial year that ended on March 31, 2023 (FY2023), marking a turnaround from three consecutive years of losses. The earnings soared to a record S$2.16 billion, fueled by robust demand for air travel. The total dividend for FY2023 was 38 Singapore cents per share. According to Bloomberg's average of analysts' estimates, SIA is projected to report a net profit of S$2.6 billion for FY2024. Goh stated that SIA has been gearing up for a recovery since the onset of the pandemic in March 2020. "From the beginning of the pandemic, we were determined to be the first to recover. To ensure that we continue to lead the industry, we launched the 'Lead the n world' transformation program in April 2020. We continued to enhance the skills of our staff kept the operating crew active, and ensured that the aircraft were ready for operation during the pandemic. As a result, we were often the first to restore capacity whenever a country's borders reopened. All these factors contributed to the profits we recorded," he added. To bolster its balance sheet during the pandemic, SIA carried out a renounceable rights issue of up to 1.77 billion new shares at S$3 per share, raising S$5.3 billion. Additionally, the flag carrier raised S$6.2 billion through a mandatory convertible bond (MCB) issue. "Following the performance of the last financial year, we were able to reward our holders with good dividend yields over 6%," Goh said, adding that the group has redeemed 75% of the MCB that were issued in June 2021. For 1HFY2024, SIA declared an interim dividend of 10 Singapore cents per share, totaling S$297 million, payable on Dec 22. SIA's share price had increased 12.5% year to date to close at S$6.22 last Thursday, which is a 107% premium to the rights price. In a Nov. 8 report, Nomura Global Markets aviation analyst Ahmad Maghfur Usman maintained a "buy" rating on SIA’s stock, with a target price of S$9.17, and continues to value the stock at 10 times FY2024 forward earnings per share of 92 Singapore cents.

(USD 1 = SGD 1.338)

Source of data: EDGE Malaysia

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