SIA's earnings to be $320m higher in 1H13

Thanks to gains on the Virgin disposal.

Nomura estimates there will be a gain on disposal of the Virgin stake (to be reduced by an additional SGD117mn cost written off to reserves), which will be booked in FY14F. In addition, it estimates this will reduce earnings drag on SIA in future, due to the loss-making associate no-longer being part of the financials after the deal closure.

Here's more from Nomura:

On a pro-forma basis, the reported earnings for SIA for the 1H13 period would have been ~SGD320mn higher, assuming the deal had closed before 2Q13, due to the gain on disposal. The proceeds will most likely be reinvested in growing SIA’s business in Asia, as according to management, it is looking at more acquisitions, notably in China and India.

We maintain BUY on SIA, on further improvement in sentiment surrounding the stock. Despite potential yield pressure, we expect earnings to bottom out and a solid net cash position (SGD3.7bn net cash as at Sep 2012), which prompt us to use a mid-cycle target P/B multiple (1.1x) to derive our TP of SGD12.50. There is also the possibility of SIA returning some of the proceeds from the disposal (out of ~37 S$ cents per share) as special dividend.

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