Singapore Airlines Earnings: Yield Pressure Somewhat Expected, FVE Unchanged, Buying Opportunity

While Singapore Airlines’, or SIA’s, June quarter results reflected growing competition with a softening in passenger yield, it was not far off from our original assumptions. Revenue came in at SGD 4.7 billion, up 5.3% year on year, aligned with our forecasts for full-year fiscal 2025 (ending March), but higher fuel costs ate into profitability with operating margin at 10%, down 6.8 percentage points year on year. However, we consider fuel costs to be in line with our full-year assumption on our expectation for oil prices to ease through the year. We expect a stronger second-half performance in terms of operating profitability. The key change made to our fiscal 2025 estimate is to lower passenger yield for the full service carrier to 11.3 SG cents/kilometer from 11.7. This leads to a 7.7% reduction in our fiscal 2025 net profit forecast to SGD 2.05 billion excluding any potential one-off gain from the sale of Vistara. The carry-over impact sees fiscal 2026-27 earnings down around 5%. Our fair value estimate remains at SGD 7.80, and following the Aug. 1 share price fall, we think SIA remains attractive, trading at 1.0 times price/book. We estimate a dividend per share of SGD 0.38 in fiscal 2025, implying a 5.5% dividend yield. We think this should support interest in the shares.