The lull's not over yet for Singapore Airlines: CIMB

SIA delivered decent $90M profit but CIMB worries over one thing.

It's revenue trends not particularly strong enough.

Although SIA managed to deliver a decent core net profit of S$90m in 2QFY13 due to sound cost control and lower effective tax rates, 1HFY13
core profit was below expectations at just 37% of CIMB'sfull-year estimate and 34% of consensus numbers.

Here's from CIMB:

Revenue trends not particularly strong
SIA delivered a decent 2QFY13 core net profit of S$90m, with operating profit at S$70m, 5% ahead of our estimates. Parent airline revenues inched up 4% yoy last period as traffic grew 7%, while revenue for SilkAir surged 18% on the back of a solid 22% improvement in traffic.

Both parent airline and SilkAir saw yields drop almost 3% yoy. SIA Cargo observed a demand decline of 4% yoy in the period, sharper than the drop in capacity of just 2% yoy.

As a result, load factors fell 1%pt and yields deteriorated by 4% yoy.

Sound cost control
SIA Group managed to keep operating costs lower than we had estimated. Depreciation expenses fell 4% yoy, while aircraft leasing costs also declined 5% yoy. Interest expenses more than halved from S$22.5m to S$10.6m in the period.

Competitive measures will take time to work
Although SIA has attempted to stave off competition from the low-cost carriers and the Middle Eastern airlines via the development of
SilkAir and the broadening of its alliance network, we think these actions will not have an immediate impact on profitability. As such, we
see further near-term challenges.

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