INVESTORS TURN BEARISH ON SIA
However, earnings set to improve on weaker oil prices and hedging strategy
INVESTORS are turning bearish on Singapore Airlines Ltd (SIA) after profit plunged 81 per cent in the biggest decline in seven years. Shares of the Singapore flag carrier fell two per cent yesterday and were traded at S$9.36 (RM28.08) at 1.09pm in the citystate.
Net income fell on the steep fuel costs and a one-time charge at its Virgin Australia affiliate, said SIA on Tuesday.
Last year’s profit was inflated by a one-time gain related to its Krisflyer programme.
The latest result reflects a period of rising fuel costs and jet fuel prices have weakened since then, UOB Kay Hian analyst K. Ajith wrote in a report yesterday.
“The street had not factored in losses from 20 per cent-owned Virgin Australia,” wrote Ajith, who has a price estimate of S$10.40 and recommends investors accumulate the stock near S$9.20-S$9.30.
SIA joins rivals such as China Southern Airlines Co whose earnings have been hit by oil costs, the biggest expense for Asian operators.
The Singapore carrier’s earnings should improve for the rest of the fiscal year on weaker oil prices and a conservative hedging strategy, according to Bloomberg Intelligence.
“Fuel price has been very volatile. Today, you saw how it has come down,” said SIA chief executive officer Goh Choon Phong yesterday.
“We will continue to hedge to ensure we manage the volatility.”
The carrier’s fuel expenses climbed 24 per cent to S$1.16 billion in the second quarter as average Brent prices soared 46 per cent from the year before.
It posted a fuel-hedging gain of S$151.7 million, compared with a hedging loss of S$3.3 million a year earlier.
The airline’s quarterly losses from associate companies amounted to S$117.1 million, largely due to accounting adjustments made for its shareholding in Virgin Australia.
SIA, which is carrying out a transformation programme to improve competitiveness and reduce costs, will pay shareholders an interim dividend of S$0.08 per share.