SIA - SIA off 1.1%; 3Q saved by savvy Hedging - UOB KayHian

Stock Name: SIA
Company Name: SINGAPORE AIRLINES LTD
Research House: UOB KayHian

Singapore Airlines (C6L.SG) is off 1.1% at $14.88, in line with a broadly weaker market, despite below-consensus 3Q results, with management noting a cloudy outlook. UOB KayHian says SIA’s “strong grip on its costs” could support its stock near term; the house notes passenger unit costs were at 8.6 cents/ASK, against its forecast of 9.0 cents/ASK; “This suggests that SIA had hedged a substantial portion of fuel requirements.” 

However, the house notes management warned about airlines’ higher capacity injections and higher jet fuel prices. “Tiger Airways (J7X.SG) is expected to add 40% in capacity out of Singapore, which could put pressure on yields.” 

The house keeps its Hold rating and $15.90 target, saying net profit was 71% above its expectation of $170 million on lower-than-expected unit costs (off 2.3% on quarter), $45.1 million in recognition of liquidated damages and subsidiary SilkAir’s surprisingly strong results. 

It adds, an improvement in load factors will likely be the next share price catalyst. The house suggests a $14.30 entry price.