SIA's profits to soar up to 74% in Q3: UOB Kay Hian

Cargo operation profit is expected to hit a 10-year high.

Singapore Airlines (SIA) will report its Q3 results on 13 February, and strong performance for the quarter is expected to lift its profits by up to 74% YoY, UOB Kay Hian said.

According to a forecast, the firm could be boosted by higher profits from its parent airline and SIA Cargo.

Pax loads rose by 3% YoY for the parent airline as traffic growth continued to outpace capacity due to stronger passenger demand during the year-end peak period.

UOB Kay Hian analyst K Ajith commented, "The growth in profit would be partially driven by SIA’s 'efforts to stabilise yields', as every 0.1 cent rise from our base yield assumption of 10.40 cents is expected to improve 3Q2018 PBT and net profit by 7.2% and 6.9% respectively."

In Q2, SIA Cargo's operating profit jumped by 236% YoY, led by a 9.1% yield growth and 2.8ppt increase in load factors.

However, there was a 5ppt decline in loads for the Americas in December 2017, which could lower yields for the month.

"Every 1 cent rise from our base yield assumption of 28.7 cents is expected to improve 3Q2018 PBT and net profit by 5.6% and 5.3% respectively."

Most notably, cargo yields could increase by much more than our estimate of 5.1%, as seen in the numbers reported by Taiwanese carriers. On a negative note, airline subsidiaries are expected to underperform the parent airline if yields do not rise in tandem with unit costs.

Even if SIA's airline subsidiaries saw better pax traffic Q3, fuel costs could hamper SilkAir and Scoot's operating profits.