SIA flies back into the black as 2017 profits may hit $765m

This reverses a $6.4m loss the airline registered in Q4.

Singapore Airlines is well-positioned for takeoff as full-year net profit is expected to hit $765m in 2017 which reverses a $6.4m loss it recorded in Q4, according to UOB Kay Hian. 

The boost in profitability comes amidst stronger earnings from the parent airline, higher cargo and Scoot profits.

Also read: SIA passenger load factor improves to 82.2% in March

For the past three quarters, SIA booked in $120m in operating profit from cargo operations, vs a measly $8m in the preceding quarters.

“At the non-operating level, SIA’s JVs are similarly expected to show yoy growth due to increased engine checks from SIA Engineering’s engine JVs,” said analyst K Ajith. “We expect SIA to declare a final dividend of 17 S cents, but full-year dividend payout to be reduced from 65% to 40%.”

Here’s more from UOB Kay Hian: 

In 3QFY18, SIA’s pax yields fell by 1% yoy. We have assumed pax yields to remain flat at 10.1 S cents. We believe local yields would have improved but a stronger Singapore dollar could have impacted tickets outside of Singapore. RASK, which is revenue expressed as proportion of passenger capacity, is estimated to have risen by 1% yoy vs a 2.3% yoy increase in 3QFY18.

 If SIA manages to dispose off aircraft and thus reduce improve cash flow, then it would require less debt to fund capex. As at 9MFY18, SIA generated just S$83m from sale of PPE, while recognising capex of S$4.3b (guidance for FY18 is S$6.0b). Despite raising S$1.6b in net debt, SIA’s internal cash flow was depleted by 29% to S$2.9b. We have estimated SIA will raise S$3b in debt by end-FY18. SIA’s cash generation via capex and asset sales (via organic sale and via sale-andleaseback) will be key earnings determinant.