Expect further SIA de-rating: UOB-KH

Singapore Airlines’ lower-than-expected earnings could lead to a further de-rating, UOB KayHian says. It notes fiscal 2Q net profit of $90 million, down 54% on year, was 5.9% above its expectation, but 36% below consensus.

The house also notes a key positive from the parent airline’s yields coming in flat on quarter, as SIA had warned of weak yields; the cargo loss was worse than expected as yields fell, the biggest drag on earnings, it says.

“While the results were broadly within expectation, we are concerned about the weak cash flow. This is mainly due to losses at SIA Cargo,” it notes; “expect further de-rating as the cut in dividend underscores the structural challenges.”

Note, SIA cut its fiscal 1H dividend to $0.06/share, from $0.10/share a year earlier. The house keeps a Sell call with a $9.10 target. “With a weak demand outlook and structural challenges, we believe there are few reasons to own the stock at current levels.” The stock is down 1.5% at $10.42.