Brokers' Call: Singapore Airlines

SINGAPORE AIRLINES

Brokers: OCBC Investment Research

Call: Buy

Target Price: $10.36

Singapore Airlines' (SIA) third-quarter revenue for financial year 2017 fell 2.5 per cent year on year to $3.84 billion on lower passenger flown revenue as passenger yields fell across all SIA portfolio airlines.

SIA Cargo's third quarter for 2017 was exceptional as it achieved $53 million in operating profit - its best third quarter in nine years. While SIA recorded a $79 million write-down over its Tigerair brand and trademark, this is one-off and coupled with a 17.6 per cent year-on-year fall in fuel expenses, the core profit after taxes and minority interests in the quarter grew 20.3 per cent to $256.2 million.

The weak yield environment will persist on overcapacity amid the tepid global economic outlook. However, SIA has also taken the opportunity to hedge Brent out to 2022.


FRASER'S & NEAVE

Brokers: DBS Group Investment

Call: Hold

Target Price: $2.37

F&N's first-quarter results for 2017 were within expectations. Net profit dipped by 12 per cent while revenue was relatively flat at $495 million. Beverages registered a growth of 5.2 per cent year on year, while profit before interest and taxes (PBIT) fell by 19.7 per cent to $8.7 million.

Dairies revenue eked out marginal top-line growth of 2.4 per cent year on year to $278.6 million, but PBIT margins stayed resilient at 14.2 per cent. This was attributed to favourable milk-based commodity prices and timing of advertising spend. Margins could moderate, going forward.

F&N raised its stake in Vinamilk by 5.4 per cent to 16.35 per cent in December, and a further 1.1 per cent to 17.5 per cent. It has indicated it may acquire more shares in Vinamilk. While its available cash has been largely depleted by its investment in Vinamilk, it will leverage on its balance sheet for debt, and possibly equity fund raising.


SINGTEL

Brokers: OCBC Investment Research

Call: Buy

Target Price: $4.27

Singtel's third-quarter operating revenue for financial year 2017 fell 1.5 per cent year on year to $4.4 billion, impacted by its Australia consumer business on decline in mobile termination price rates, but partly offset by its stronger Singapore consumer business and higher advertising revenue from its digital life business.

Third-quarter Ebitda (earnings before interest, taxes, depreciation and amortisation) was stable at $1.2 billion but would have declined 2.2 per cent in constant currency terms with heightened competition in Australia.

Even after including exceptional third-quarter loss of $22 million, net profit after taxes (Npat) grew 1.8 per cent to $973 million while underlying Npat rose 4.2 per cent to $994 million, driven mainly by a 6.1 per cent growth in underlying profit contributions from Singtel's associates.

Singtel expects financial year 2017 consolidated revenue to decline by a low single digit while Ebitda should be stable. Capital expenditure is expected to remain at $2.4 billion on cash basis, and group free cash flow is expected to be approximately $1.5 billion.

A version of this article appeared in the print edition of The Straits Times on February 13, 2017, with the headline 'Brokers' Call'. Print Edition | Subscribe