Higher costs weigh on SIA, but record earnings still expected: analyst

UOB Kay Hian has cut earnings forecasts by 3.6% for 2024.

Higher cost pressures will hit Singapore Airlines’ (SIA) earnings in 2024 and 2025, according to UOB Kay Hian.

The brokerage firm cut its FY2024 and FY2025 earnings forecasts for the airlines by 3.6% and 3%, respectively, in anticipation of higher non-fule operating costs. SIA is now expected to earn S$3.69b and S$1.58b in FY2024 and FY2025.

The FY2024 net profit estimate accounts for a S$1.1b gain from the Air India Vistara merger.

UOB Kay Hian still expects SIA to report record-level of earnings for the full year of FY2024. SIA is further expected to be able to sustain a 28 cents final dividend, UOB Kay Hian analyst Roy Chen said in a report. 

This would lead to FY24 total dividend per share of at least 38 cents, or over 6% yield, he added.

SIA reported a net profit of S$659m in Q3 FY2024, which is lower than UOB Kay Hian’s guided range of S$670m to S$810m. This is despite SIA getting a boost from one-offs such as tax credit and disposal gains.

“The miss was mainly attributable to higher-than-expected costs, as well as slightly weaker-than-expected cargo yields. Forward ticket booking is healthy but yields for both pax and cargo operations could be under pressure,” Chen said.

Key risks include a weaker-than-expected macroeconomic environment dampening air travel and air cargo demand; competition rising faster than expected; and unfavourable fluctuation of jet fuel prices.