Singapore Air advances most in month on special dividend: Update

Stock Name: SIA
Company Name: SINGAPORE AIRLINES LTD
Research House: Credit Suisse

Singapore Airlines, the world’s second-largest carrier by market value, rose the most in a month on the city’s stock exchange after pledging to pay S$1.20 a share in special and final dividends.

The airline climbed 2.8% to $14.66, the biggest gain since April 13. The benchmark Straits Times Index advanced 1.1%.

Singapore Air announced the dividends yesterday after rebounding travel demand following the end of the global recession helped boost annual profit fivefold. Net income in the fourth quarter declined a worse-than-expected 38% because of higher fuel costs.

“The key positive surprise is the big special and final dividend,” Credit Suisse Group AG analyst Sam Lee said in a research note today. “SIA’s valuation is not excessive, but we do not see short-term company-specific catalyst after the big cash dividend.”

Credit Suisse has an “outperform” rating and $18.50 target price for the carrier. Its forecasts are under review pending an analyst briefing today, Lee said.

The carrier’s 40 cent final dividend compares with 12 cents a year earlier. The special dividend totals 80 cents. The carrier had net cash, including investments, of $5.6 billion or about $4.70 a share, as of the end of March, Citigroup Inc. analysts led by Robert P. Kong said in a May 12 note.

PROFIT JUMP

The airline reported net income of $1.1 billion for the year ended March, compared with $216 million a year earlier. Fourth-quarter profit fell to $171 million, missing the $244 million average of four analyst estimates compiled by Bloomberg in the preceding 28 days.

The airline has hedged about 20% of this year’s fuel need at about US$130 per barrel, Chief Executive Officer Goh Choon Phong said at a press briefing in Singapore today.

In the three months ended March, the carrier filled 75.5% of total available seats, down from 80% a year earlier as capacity expansion outpaced demand, it said in a statement yesterday. Passenger numbers were little changed at 4.1 million. Yield, the average price a traveler pays to fly one kilometer, was 12.1 Singapore cents, compared with 11.1 cents a year earlier.

AIRBUS A380s

The airline intends to boost capacity 6% in the fiscal year started April 1. It expects to add eight Airbus SAS A380s, while retiring five Boeing Co. 777s and all seven of its 747-400s.

Singapore Air’s fuel bill, its biggest expense, jumped 24% to $1.24 billion in the quarter ended March 31. Jet- fuel prices averaged US$121.2 per barrel in the quarter in Singapore trading, 42% higher than a year earlier.

“The twin challenges of near-term weakness in load factors and high fuel prices will adversely affect operating performance,” Singapore Air said. “While there has been some respite in the past week, jet-fuel prices are likely to remain high and volatile in the near term.”