Profit recovery relies on expensive hedges expiring.
Singapore Airlines (SIA) is hurtling towards more substantial fuel cost savings as expensive hedges expire and drive a turnaround in earnings.
According to a report by DBS, SIA is projected to consume over 40m barrels of jet fuel per year. But with jet fuel currently at US$50 (roughly $66.94) per barrel in contrast to nearly US$120 ($160.66) per barrel at end-2014, the airline will reap substantial benefits.
In line with this, SIA’s net profit is seen to rebound from $368m in FY15 to $711m in FY16. DBS further sees a 37% YoY pick-up to $976m in FY17, followed by another 8% YoY rise to $1.05b in FY18.
Meanwhile, as SIA’s profits begin to return to a normalised level, DBS believes SIA and investors could turn their focus towards the airline’s cash hoard of over $3b, or about $3.20 per share.
At the minimum, DBS opines that SIA will up the ante by raising its dividend payout to $0.50 per share in end-FY17 and end-FY18 as earnings improve.
Further upside may also come from a return of more cash in the form of special dividends or even capital reduction, as SIA has done before.
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