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3QFY11 RESULTS

31 January 2011

SINGAPORE
OUTPERFORM Maintained
Singapore Airlines Ltd S$15.04 Target: S$20.50
Second-highest quarterly profit in history Mkt.Cap: S$18,010m/US$14,086m
Airlines

SIA SP / SIAL.SI Raymond Yap CFA +603 2084 9769 – raymond.yap@cimb.com

• Maintain OUTPERFORM; 3Q above preview. SIA earned S$477m in core net


profit during the 3Q, against our preview of S$376m. The positive variance came
from better-than-expected SilkAir and SIA Engineering performances, while the core
parent airline and cargo businesses were in line. On an annualised basis, the 9M
core net profit is in line with our full-year forecast of S$1.35bn. In our earlier preview,
we had hinted that we may need to downgrade our earnings forecasts and target
price by 15-20%, but the stronger-than-expected 3Q results suggest that a smaller
downgrade of just 5-15% may be sufficient to factor in the higher fuel price
assumptions. Our recommendation, target price of S$20.50 (11x CY12 EPS) and
forecasts remain unchanged for now pending Monday’s analyst meeting. Potential
re-rating catalysts include the continuing yield and demand recovery.
• Second-highest quarterly profit in history. The group operating profit rose to
S$509m in the 3Q, second only to the EBIT of S$643m in the December 2007
quarter after stripping out SATS’ contributions from prior years. The passenger
business EBIT of S$378m was its fourth highest quarterly profit. Contributing to the
SIA group was also strong performances from SilkAir, which almost doubled its
EBIT to US$45m, and SIA Engineering which increased its EBIT by 58% to S$34m.
Passenger yields continued its recovery, rising 15% yoy and is now just 5.5% short
of its all-time high two years ago. Meanwhile, the spread between the passenger
load factor and its breakeven load rose to a three-year high of 8.6% pts, as the
3.6% yoy rise in unit cost lagged the yield recovery.
• Reinstating capacity. SIA’s passenger ASK growth of 3.7% yoy in the fiscal 3Q
was its highest growth in two years, though capacity remained 6% below the Dec 08
quarter. SIA previously guided for 5% yoy ASK growth in 2HFY11, suggesting full-
year ASK growth of 2.2%. In order to achieve this, SIA reinstated one B747-400 and
one B777 plane last quarter, increasing its fleet from 105 to 109 planes after adding
two A330 deliveries. However, the outlook statement sounded caution on three
fronts: i) rising jet fuel prices; ii) slowing growth in airfreight and uncertainties in
European markets; and iii) advance bookings “levelling off” as more airlines inject
capacity. These factors suggest a more modest pace of earnings growth this year.

Results comparison
FYE Mar (S$ m) 3QFY1 1 3QFY10 yoy % qoq % 3 QFY11 3QFY1 0 yoy % Prev.
chg chg Cum Cum chg FY11F Comme nts
Reve nue 3 ,841.0 3,418 .0 12.4 5.8 10,9 38 9 ,371.5 16 .7 1 4,658.4 Ann ualised 9M revenu e in line a t just 0.5 % be lo w
Operating costs (2 ,912.1) (2,667 .7) 9.2 1.2 (8,59 6.8) (8 ,260.6) 4 .1 (1 1,535.6) while annu alised cost and EBITDA a lso in
EBITDA 928.9 750 .3 23.8 23.1 2,34 1.2 1 ,110.9 110 .7 3,122.8 line.
EBITDA ma rgin (%) 24.2 22 .0 2 1.4 11.9 21.3
Depn & amort. (419.6) (427 .4) (1.8) 2.6 (1,23 5.7) (1 ,288.7) (4 .1) (1,640.0 ) In line.
EBIT 509.3 322 .9 57.7 47.3 1,10 5.5 (177.8) 721 .8 1,482.8 In line; EBIT rose 57 .7% yo y in the 3Q due to
Inte rest expense (19.6) (16 .5) 18.8 15.3 (52.1) (55.3) (5 .8) (67.6) recovery in pax yie lds, wh ile cost increases
Inte rest & invt inc 57.8 28 .1 1 05.7 46.0 11 4.8 95.6 20 .1 113.6 la gged.
Asso ciates' con trib 50.2 38 .0 32.1 13.6 13 5.1 115.1 17 .4 180.0 Asso ciates in line .
Exce ptionals (188.3) 24 .1 (8 81.3) (377.3 ) (96.0) 27.0 (455 .6) (35.0) Provisio n made in 3 Q for the cargo cartel f ine s.
Pretax profit 409.4 396 .6 3.2 (14.8 ) 1,20 7.3 4.6 nm 1,673.8
Tax (107.8) 18 .8 (6 73.4) 26.1 (24 2.9) (19.0) nm (290.5) High er tha n expected, bu t not ma terial.
Tax rate (%) 26.3 (4 .7) 2 0.1 413.0 17.4
Minority interest s (13.3) (11 .7) 13.7 (9.5 ) (43.4) (47.8) (9 .2) (67.0) Lo wer than expe cted , but not material.
Net profit 288.3 403 .7 (28.6) (24.2 ) 92 1.0 (62.2) nm 1,316.4
Core net profit 476.6 379 .6 25.6 52.6 1,01 7.0 (89.2) nm 1,351.4 Ann ualised 9M co re ne t prof it in line with full yea r
EPS (cts) 24.1 34 .0 (29.3) (24.2 ) 7 7.0 (5.2) nm 110.5 fore cast, with just 0.3% variance.
Core EPS (cts) 39.8 32 .0 24.4 52.5 8 5.0 (7.5) nm 113.4
Source: Company, CIMB Research

Please read carefully the important disclosures at the end of this publication.
Financial summary
FYE Mar 2009 2010 2011F 2012F 2013F
Revenue (S$ m) 15,996.3 12,707.3 14,658.4 15,661.9 17,167.2
EBITDA (S$ m) 2,716.3 1,777.0 3,122.8 3,529.2 4,358.0
EBITDA margins (%) 17.0% 14.0% 21.3% 22.5% 25.4%
Pretax profit (S$ m) 1,336.8 285.5 1,673.9 2,128.6 2,970.8
Net profit (S$ m) 1,061.5 215.8 1,316.4 1,699.8 2,398.8
EPS (S cts) 89.5 18.2 110.7 142.7 201.3
EPS growth (%) (46.9%) (79.7%) 508.7% 28.9% 41.1%
P/E (x) 16.8 82.7 13.6 10.5 7.5
Core EPS (S cts) 77.9 16.0 113.1 142.7 201.3
Core EPS growth (%) (51.5%) (79.4%) 605.1% 26.1% 41.1%
Core P/E (x) 19.3 93.7 13.3 10.5 7.5
Gross DPS (S cts) 48.2 14.5 72.4 96.4 120.5
Price chart
17.4 1.00
Dividend yield (%) 3.2% 1.0% 4.8% 6.4% 8.0%
16.9 0.90
0.80
P/BV (x) 1.3 1.3 1.3 1.2 1.1
16.4
15.9
0.70
0.60
ROE (%) 7.3% 1.6% 9.6% 11.8% 15.6%
15.4
14.9
0.50 Net cash per share (S$) 1.71 2.50 3.08 3.19 4.32
P/FCFE (x)
0.40
14.4
0.30 60.0 27.9 13.0 17.3 7.2
13.9
EV/EBITDA (x) 6.0 8.5 4.7 4.1 3.0
0.20
13.4 0.10
12.9
J a n-10 J un-10 Nov-10
0.00
% change in EPS estimates N/A N/A N/A
Volume 10m (R.H.S ca le ) S ing a pore Airline s Ltd CIMB/Consensus (x) 1.01 1.02 1.33
Source: Bloomberg Source: Company, CIMB Research, Bloomberg

Figure 1: Revenue metrics


3QFY11 3QFY1 0 yoy % qoq % 3QFY11 3QFY10 yoy % Comments
chg chg Cum Cum chg
Pas senger busines s
ASK (m) 2 7,814 26,81 4 3.7 % 3.6 % 80,574 79,580 1 .2% 3Q ASK up 3.7% as SIA started re instating
RPK (m) 2 2,176 22,10 8 0.3 % 2.8 % 64,044 62,016 3 .3% capacity, RPK growth of 0 .3% yoy lagged ,
hence th e PLF drop ped 2.7 % pts yoy.
Passenger load factor (%) 79.7% 82.4% -2.7 % -0.6 % 79 .5% 77.9% 1 .6% However, the PLF o f 79.7% during 3Q wa s very
Break-even load facto r (%) 71.1% 79.0% -7.9 % -3.5 % 73 .9% 83.3% -9 .4% high, an d the po sitive spread wid ened to
Spread (%) 8.6 % 3.4% 5.2 % 2.9 % 5 .6% -5.4% 11 .0% 8.6% pts as yields rose fa ster than costs.

Passengers carried (000) 4,372 4,41 1 -0.9 % 5.0 % 12,555 12,414 1 .1% Pax carried droppe d 0.9% yoy during 3 Q.

RASK (cts/ASK) 9.65 8.6 6 11.4 % 1.8 % 9.46 7 .95 19 .0% RASK ro se 11% yoy an d 1.8% qoq, as yields
Passenger yield (cts/RPK) 12.10 10.5 0 15.2 % 2.5 % 11.90 10 .20 16 .7% ro se 15.2% yo y and 2.5% qo q, offsetting the
Pax unit costs (cts/ASK) 8.60 8.3 0 3.6 % -2.3 % 8.80 8 .50 3 .5% impact of ma rginal PLF declines.

Cargo business
AFTK (m) 2,916 2,77 1 5.2 % 1.0 % 8,478 8,004 5 .9% Cargo AFTK capacity u p 5.2% yoy in 3Q, in line
FTK (m) 1,896 1,80 3 5.1 % 3.7 % 5,464 5,035 8 .5% with the rise in FTK deman d, hence th e CLF
re mained stable at 6 5%.
Cargo loa d factor (%) 65.0% 65.1% -0.1 % 1.7 % 64 .4% 62.9% 1 .5% The break-even load factor also remained la rgely
Break-even load facto r (%) 61.2% 61.0% 0.2 % 1.0 % 60 .5% 70.2% -9 .7% stable at 61.2 %, h ence the spread was a
Spread (%) 3.8 % 4.1% -0.3 % 0.7 % 3 .9% -7.3% 11 .2% positive 3.8% pt s in 3Q, risin g fro m 2Q's 3.1%.

Cargo carried (m kg) 304.6 300. 4 1.4 % 5.0 % 876.0 84 9.3 3 .1% Cargo carried rose 1. 4% yoy and 5% qoq du e to
the stro ng Ch ristmas sea son deman d.
RAFTK (cts/AFTK) 23.15 22.7 2 1.9 % 1.8 % 23.65 19 .19 23 .3% Cargo RAFTK rose 1.9% yoy and 1.8% qoq.
Cargo yield (cts/FTK) 35.60 34.9 0 2.0 % -0.8 % 36.70 30 .50 20 .3% Cargo yield rose 2% yo y due to de mand recovery
Cargo unit costs (cts/AFTK) 21.80 21.3 0 2.3 % 0.9 % 22.20 21 .40 3 .7% but fell 0.8% qoq on greater systemic capacity.
Source: Company, CIMB Research
Figure 2: Cost metrics
3QFY11 3QFY10 y oy % qoq % 3 QFY11 3QFY1 0 yoy % Comments
chg chg Cum Cum chg
Operating c osts (S$ m) -2,759.6 -2, 537.0 8.8% 1.0 % -8 ,160.9 -7,840.0 4. 1% Ope rating costs rose 8.8% yoy in 3Q, mainly du e
- Fue l -1,113.2 -1, 029.5 8.1% 1.9 % -3 ,336.3 -3,198.0 4. 3% to 8% higher fuel cost s, as jet fuel prices rose.
- Non-fuel costs -1,646.4 -1, 507.5 9.2% 0.4 % -4 ,824.6 -4,642.0 3. 9% Meanwhile, n on-fu el costs rose primarily due to
* Staff -5 55.9 -477.4 16.4% -1.4 % -1,646.9 -1,6 64.2 -1. 0% a 16.4 % yoy rise in staff co sts as sa laries were
* Lan ding, parking, o verflying -1 58.2 -149.9 5.5% 2.2 % -460.4 -4 43.5 3. 8% restored from May.
* Ha ndling ch arge s -2 48.7 -245.2 1.4% 7.0 % -710.7 -5 49.9 29. 2% On a pro forma basis withou t SATS in the comparative
* Co mmissions -1 08.5 -80.5 34.8% 6.0 % -307.4 -2 30.4 33. 4% period , 9M op erating costs rose 5.9 % yoy, with staff
* Other costs -5 75.1 -554.5 3.7% -1.8 % -1,699.2 -1,7 54.0 -3. 1% co sts up 11.7% and handlin g charg es up 5.1%.

Owne rship costs (S$ m) -591.7 -574.6 3.0% 3.6 % -1 ,723.7 -1,764.6 -2. 3%
* De preciation -419.6 -427.4 -1.8% 2.6 % -1 ,235.7 -1,288.7 -4. 1% Depreciation d ropped 1.8% yoy due to sale of several
* Lea sing of aircraft -152.5 -130.7 16.7% 5.2 % -435.9 -420.6 3. 6% B777-200ERs and the deconsolidat ion of SATS
* Interest expense -19.6 -16.5 18.8% 15.3 % -52.1 -55.3 -5. 8% from 1 Sep 09. Leasing charges rose 16 .7% as
eight A330 -300 le ase s were delivere d in 9MFY11.
Source: Company, CIMB Research

Figure 3: Segmental breakdown


3QFY11 3QFY10 yoy % qoq % 3QFY11 3QFY10 yoy % Comments
chg chg Cum Cum chg
Revenue (S$ m) 3,841.0 3,4 18.0 12.4% 5.8% 10,938.0 9,371.5 1 6.7% 3Q re v rose 12% yoy with pax and cargo re v rising,
- SIA (pa ssenge r) 2,683.3 2,3 21.4 15.6% 5.5% 7,603.4 6,306.9 2 0.6% offset b y decon solidation of SATS from 1 Sep 09.
- SIA Cargo 674.9 6 29.4 7.2% 2.8% 2,004.7 1,533.8 3 0.7%
- Others (SIAEC/SilkAir) 482.8 4 67.3 3.3% 12.2% 1,329.9 1,530.8 -1 3.1%

EBIT (S$ m) 509.3 322.9 57.7% 47.3% 1,105.5 -17 7.8 72 1.8% 3Q EBIT rose 58% yoy as all divisio ns sho wed
- SIA (pa ssenge r) 378.0 231.0 63.6% 54.9% 758.0 -19 7.0 48 4.8% improvements. The parent a irline saw profits
- SIA Cargo 48.0 40.0 20.0% 14.3% 150.0 -15 3.0 19 8.0% rise 64% yoy, ca rgo +20% yoy. SilkAir did
- SATS 0.0 0.0 nm nm 0.0 7 1.0 nm comme ndably, with profits rising 96% yoy.
- SIA Engineering 34.0 22.0 54.5% -2.9% 105.0 6 9.0 5 2.2% SIA Eng ine ering's EBIT rose 55% yo y.
- SilkAir 45.0 23.0 95.7% 114.3% 81.0 1 5.0 44 0.0% The qoq p erfo rman ce was bolste red b y th e peak
- Others 4.3 6.9 -37 .7% 16.2% 11.5 1 7.2 -3 3.1% EBIT rising 55% qoq a nd SilkAir +1 14% qoq.

EBIT margi n (%) 13.3% 9.4% 3.8% 3.7% 10.1% -1.9% 1 2.0% Improvements in EBIT marg in yoy and qoq for
- SIA (pa ssenge r) 14 .1% 1 0.0% 4.1% 4.5% 10.0% -3.1% 1 3.1% both passe nger and cargo.
- SIA Cargo 7 .1% 6.4% 0.8% 0.7% 7.5% -10.0% 1 7.5%

Source: Company, CIMB Research

Figure 4: Quarterly results


FYE Mar (S$ m) 3QFY09 4QFY09 1QFY10 2 QFY10 3QFY10 4QFY10 1QFY1 1 2QFY11 3QFY11

Reve nue 4,164.0 3,321.3 2,8 71.4 3,08 2.1 3,418.0 3,335.8 3, 465.8 3,63 1.2 3,841 .0
Operating costs (3,383.8) (2,819.4) (2,7 68.5) (2,82 4.4) (2,667.7) (2,669.7 ) (2, 808.1) (2,87 6.6) (2,912 .1)
EBITDA 780.2 501.9 1 02.9 25 7.7 750.3 666.1 657.7 75 4.6 928 .9
EBITDA ma rgin (%) 18.7 15.1 3.6 8.4 22.0 20.0 19.0 2 0.8 24 .2
Depn & am ort. (423.5) (417.9) (4 22.2) (43 9.1) (427.4) (425.1 ) (407.2) (40 8.9) (419 .6)
EBIT 356.7 84.0 (3 19.3) (18 1.4) 322.9 241.0 250.5 34 5.7 509 .3
Inte rest expense (27.5) (20.1) (20.7) (1 8.1) (16.5) (13.6 ) (15.5) (1 7.0) (19 .6)
Inte rest & invt inc 40.7 30.2 33.1 3 4.4 28.1 21.1 17.4 3 9.6 57 .8
Asso ciates' con trib 14.6 (86.3) 38.8 3 8.3 38.0 34.0 40.7 4 4.2 50 .2
Exce ptionals 45.6 20.7 (1.8) 4.7 24.1 (1.6 ) 24.4 6 7.9 (188 .3)
Pretax profit 430.1 28.5 (2 69.9) (12 2.1) 396.6 280.9 317.5 48 0.4 409 .4
Tax (71.4) 36.6 (19.2) (1 8.6) 18.8 13.0 (49.6) (8 5.5) (107 .8)
Tax rate (%) 16.6 (128.4) (7.1) (1 5.2) (4.7) (4.6 ) 15.6 1 7.8 26 .3
Minority interest s (21.5) (23.2) (18.0) (1 8.1) (11.7) (15.9 ) (15.4) (1 4.7) (13 .3)
Net profit 337.2 41.9 (3 07.1) (15 8.8) 403.7 278.0 252.5 38 0.2 288 .3
Core net profit 291.6 21.2 (3 05.3) (16 3.5) 379.6 279.6 228.1 31 2.3 476 .6
EPS (cts) 28.4 3.5 (25.9) (1 3.4) 34.0 23.3 21.2 3 1.8 24 .1
Core EPS (cts) 24.6 1.8 (25.7) (1 3.8) 32.0 23.5 19.1 2 6.1 39 .8
Source: Company, CIMB Research
Notes: “Surplus on disposal of aircraft, spares and spare engines” are classified as Exceptional items, although SIA does not consider them to be exceptional in nature.
Quarterly results in pictures
Figure 5: Core net profit (S$ m)

600 595 486


476 477
399 380
352 351
400 312 326 291 299 292 280 312
243 238 261
Strong 46.5% yoy rise in 232 228
core net profit, with all 200
divisions (passenger, cargo, 21
engineering, SilkAir)
showing substantial yoy 0
improvements. Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec
-200 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 09 09 09 10 10 10 10
-164
-400 -305

Source: Company, CIMB Research

Figure 6: EBIT breakdown for passenger and cargo segments only (S$ m)

600 Passenger EBIT (S$ m) Cargo EBIT (S$ m)

The SIA passenger 400


business saw its operating
profit rise 64% yoy to its
200
highest level the December
2007 quarter.
0

Cargo EBIT rose 20% yoy Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec
and 14% qoq. -200 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 09 09 09 10 10 10 10

-400

Source: Company, CIMB Research

Passenger charts

Figure 7: Passenger ASK

31,000 15%
SIA ASK (m seat km) Yoy (%)
Passenger ASK capacity up 30,000 10%
3.7% yoy, the highest 29,000
growth in two years. 28,000
5%

27,000 0%
SIA added capacity to 26,000 -5%
various popular destinations, 25,000
and reinstated one B747- 24,000
-10%
400 and one B777 aircraft
23,000 -15%
during the December
quarter. Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec
05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 09 09 09 10 10 10 10

Source: Company, CIMB Research


Figure 8: Passenger RPK

25,000 15%
SIA RPK (m seat km) Yoy (%)
10%
Passenger RPK demand 23,000
5%
grew 0.3% yoy, slower than 0%
21,000
the ASK capacity growth.
-5%
19,000 -10%
Demand was affected by the -15%
heavy snowfall in US and 17,000
-20%
Europe, particularly in the
15,000 -25%
month of December.
Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec
05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 09 09 09 10 10 10 10

Source: Company, CIMB Research

Figure 9: Passengers carried

5,000 SIA passengers carried (000) 15%


Yoy (RHS)
10%
4,750
5%
Passengers carried dropped 4,500
0%
0.9% yoy because of the 4,250 -5%
snow-related disruptions, -10%
but rose 5% qoq due to the 4,000
-15%
seasonal peak travel 3,750
-20%
demand.
3,500 -25%
Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec
05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 09 09 09 10 10 10 10

Source: Company, CIMB Research

Figure 10: Passenger ASK and RPK yoy change (%)

SIA RPK y oy change (%) SIA ASK y oy change (%)


20%

10%

ASK growth exceeded RPK 0%


growth in the fiscal 3Q for Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec
the first time in six quarters. -10% 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 09 09 09 10 10 10 10

-20%

-30%

Source: Company, CIMB Research

Figure 11: Passenger load factor, breakeven load factor, and spread (%)

95% Passenger load factor (%) Breakev en load factor (%) Spread (%) 15.0%
The positive spread rose to 90% 10.0%
8.6% pts in Dec 10, due 85%
5.0%
mainly to the fall in the
80%
breakeven load factor (BLF). 0.0%
75%
-5.0%
70%
The BLF dropped 7.9% pts -10.0%
65%
yoy to 71.7% due to higher
yields which offset any unit 60% -15.0%
cost increases. Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec
05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 09 09 09 10 10 10 10

Source: Company, CIMB Research


Figure 12: Passenger yield (Scts/RPK) and yoy change (%)

13.0 SIA pax y ield (Scts/RPK) 30%


Yoy (RHS)
12.0 20%

10%
The passenger yield rose 11.0
15.2% yoy to 12.1 cts, but 0%
10.0
was still 5.5% short of the -10%
all-time high of 12.8 cts
9.0 -20%
achieved two years ago.
8.0 -30%
Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec
05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 09 09 09 10 10 10 10

Source: Company, CIMB Research

Figure 13: Passenger RASK (Scts/ASK) and yoy change (%)

11.0 SIA pax RASK (Scts/ASK) 30%


Yoy (RHS) 10.1 9.9 10.110.1
9.8
10.0 9.5 9.5 9.6 20%
9.1 9.1 9.2
8.9 8.9 10%
9.0 8.6 8.7
Passenger revenue per unit 8.4
8.1 8.3 8.2 8.0 0%
of capacity (RASK) rose 7.8
11.4% yoy to 9.6 cts, and is 8.0 7.3 7.3 -10%
5% short of the peak of 10.1 7.0
cts achieved two years ago. -20%

6.0 -30%
Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec
05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 09 09 09 10 10 10 10

Source: Company, CIMB Research

Cargo charts

Figure 14: Cargo AFTK

3,600 SIA AFTK (m tonne km) Yoy (%) 15%


3,400 10%
Cargo AFTK capacity in the
fiscal 3Q was 5.2% higher 3,200 5%
yoy, but still 6.5% below two 3,000 0%
years ago. 2,800 -5%
2,600 -10%
Cargo capacity has been 2,400 -15%
gradually reinstated in line 2,200 -20%
with the rising demand and 2,000 -25%
recovering world trade. Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec
05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 09 09 09 10 10 10 10

Source: Company, CIMB Research


Figure 15: Cargo FTK

Cargo FTK demand rose 2,400 SIA FTK (m tonne km) Yoy (%) 15%
5.1% yoy in the Dec quarter, 10%
2,200
in line with the rise in
2,000 5%
capacity.
0%
1,800
-5%
Demand was also 4.2% 1,600
-10%
higher than two years ago, 1,400
-15%
as opposed to capacity
1,200 -20%
being 6.5% below the Dec
08 quarter. As a result, 1,000 -25%
cargo load factor at 65% is Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec
one of the highest in history. 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 09 09 09 10 10 10 10

Source: Company, CIMB Research

Figure 16: Cargo weight carried

400 SIA cargo w eight carried (m kg) 15%


Yoy (RHS)
10%
350 5%
0%
300 -5%
Cargo weight carried rose -10%
1.4% yoy in the Dec quarter.
250 -15%
-20%
200 -25%
Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec
05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 09 09 09 10 10 10 10

Source: Company, CIMB Research

Figure 17: Cargo AFTK and FTK yoy change (%)

SIA FTK y oy change (%) SIA AFTK y oy change (%)


15%
10%
5%
Yoy capacity growth has
0%
more or less kept pace with
demand growth over the -5% Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec
past two quarters. -10% 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 09 09 09 10 10 10 10

-15%
-20%
-25%

Source: Company, CIMB Research

Figure 18: Cargo load factor, breakeven load factor, and spread (%)

80% Cargo load factor (%) Breakev en load factor (%) Spread (%) 10.0%

The cargo load factor rose 75% 5.0%


to 65% in the fiscal 3Q, 70% 0.0%
essentially flat from a year
ago, but substantially higher 65% -5.0%
than the 58.4% two years 60% -10.0%
ago. The breakeven load
55% -15.0%
factor was also flat yoy at
61.2%, leading to a positive 50% -20.0%
spread of 3.8% pts. Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec
05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 09 09 09 10 10 10 10

Source: Company, CIMB Research


Figure 19: Cargo yield (Scts/FTK) and yoy change (%)

45.0 SIA cargo y ield (Scts/FTK) Yoy (RHS) 50%


40%
Cargo yield rose 2% yoy, 30%
40.0
but at 35.6 cts in the Dec 20%
quarter, it was 8% below the 10%
peak of 38.7 cts achieved in 35.0
0%
the Jun quarter. This was -10%
because of systemic 30.0 -20%
injection of capacity by all -30%
players which created more 25.0 -40%
competition.
Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec
05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 09 09 09 10 10 10 10

Source: Company, CIMB Research

Figure 20: Cargo RAFTK (Scts/AFTK) and yoy change (%)

29.0 SIA cargo RAFTK (Scts/AFTK) Yoy (RHS) 60%


27.0
27.0 25.5 25.8
25.2
24.5 24.6 24.9 24.8 24.9 40%
25.0 24.0 23.8 23.5
22.7 22.7 22.6 22.7 23.1
23.0 21.8 22.4 22.4 20%
Cargo revenue per unit of
capacity rose 1.9% yoy, as 21.0 0%
yields rose 2% yoy and CLF 19.0 18.0
was essentially flat. 16.5 16.5 -20%
17.0
15.0 -40%
Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec
05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 09 09 09 10 10 10 10

Source: Company, CIMB Research

Figure 21: Sector comparisons


Target Core 3-yr EPS P/BV ROE Div
Bloomberg Price price Mkt cap P/E (x) CAGR (x) (%) yield (%)
ticker Recom. (Local) (Local) (US$ m) CY2011 CY2012 (%) CY2011 CY2011 CY2011
SIA SIA SP O 15.04 20.50 14,086 11.1 8.0 132.2 1.2 11.2 6.0
MAS MAS MK O 2.05 3.00 2,245 11.8 4.0 178.5 1.6 18.4 0.0
Thai Airways THAI TB N 41.75 57.00 2,954 9.4 8.6 20.7 1.0 11.3 2.6
AirAsia AIRA MK O 2.83 3.85 2,571 8.1 5.9 38.4 1.4 17.7 0.0
Simple average 12.1 6.9 91.7 1.3 14.6 2.1
O = Outperform, N = Neutral, U = Underperform, TB = Trading Buy and TS = Trading Sell
Source: Company, CIMB Research
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RECOMMENDATION FRAMEWORK #1*

STOCK RECOMMENDATIONS SECTOR RECOMMENDATIONS


OUTPERFORM: The stock's total return is expected to exceed a relevant OVERWEIGHT: The industry, as defined by the analyst's coverage universe, is
benchmark's total return by 5% or more over the next 12 months. expected to outperform the relevant primary market index over the next 12
months.
NEUTRAL: The stock's total return is expected to be within +/-5% of a relevant NEUTRAL: The industry, as defined by the analyst's coverage universe, is
benchmark's total return. expected to perform in line with the relevant primary market index over the next
12 months.
UNDERPERFORM: The stock's total return is expected to be below a relevant UNDERWEIGHT: The industry, as defined by the analyst's coverage universe,
benchmark's total return by 5% or more over the next 12 months. is expected to underperform the relevant primary market index over the next 12
months.
TRADING BUY: The stock's total return is expected to exceed a relevant TRADING BUY: The industry, as defined by the analyst's coverage universe, is
benchmark's total return by 5% or more over the next 3 months. expected to outperform the relevant primary market index over the next 3
months.
TRADING SELL: The stock's total return is expected to be below a relevant TRADING SELL: The industry, as defined by the analyst's coverage universe,
benchmark's total return by 5% or more over the next 3 months. is expected to underperform the relevant primary market index over the next 3
months.

* This framework only applies to stocks listed on the Singapore Stock Exchange, Bursa Malaysia, Stock Exchange of Thailand and Jakarta Stock Exchange. Occasionally, it is permitted for the total expected returns to be
temporarily outside the prescribed ranges due to extreme market volatility or other justifiable company or industry-specific reasons.

CIMB Research Pte Ltd (Co. Reg. No. 198701620M)


RECOMMENDATION FRAMEWORK #2 **

STOCK RECOMMENDATIONS SECTOR RECOMMENDATIONS


OUTPERFORM: Expected positive total returns of 15% or more over the next OVERWEIGHT: The industry, as defined by the analyst's coverage universe,
12 months. has a high number of stocks that are expected to have total returns of +15% or
better over the next 12 months.
NEUTRAL: Expected total returns of between -15% and +15% over the next NEUTRAL: The industry, as defined by the analyst's coverage universe, has
12 months. either (i) an equal number of stocks that are expected to have total returns of
+15% (or better) or -15% (or worse), or (ii) stocks that are predominantly
expected to have total returns that will range from +15% to -15%; both over the
next 12 months.
UNDERPERFORM: Expected negative total returns of 15% or more over the UNDERWEIGHT: The industry, as defined by the analyst's coverage universe,
next 12 months. has a high number of stocks that are expected to have total returns of -15% or
worse over the next 12 months.
TRADING BUY: Expected positive total returns of 15% or more over the next 3 TRADING BUY: The industry, as defined by the analyst's coverage universe,
months. has a high number of stocks that are expected to have total returns of +15% or
better over the next 3 months.
TRADING SELL: Expected negative total returns of 15% or more over the next TRADING SELL: The industry, as defined by the analyst's coverage universe,
3 months. has a high number of stocks that are expected to have total returns of -15% or
worse over the next 3 months.

** This framework only applies to stocks listed on the Hong Kong Stock Exchange and China listings on the Singapore Stock Exchange. Occasionally, it is permitted for the total expected returns to be temporarily outside the
prescribed ranges due to extreme market volatility or other justifiable company or industry-specific reasons.