While Raymond Yap of CGS International anticipates that the airline will pay a final dividend of S$0.38 per share, he entertains the possibility of SIA sweetening the reward to S$0.42

SINGAPORE Airlines (SIA) : C6L -0.15% might post its highest-ever net profit of almost S$2.7 billion for FY2024 and reward shareholders with a final dividend of S$0.38 a share, said CGS International analyst Raymond Yap.

 

The analyst, however, expects earnings of the national carrier to come under pressure from FY2025 from compressed yields, higher operating costs and limited capacity increase.

 

Yap was one of seven industry watchers who recommended &ldquo hold&rdquo for this stock, while three suggested &ldquo sell&rdquo and two &ldquo buy&rdquo , according to Bloomberg.

 

The carrier could be posting a core net profit of S$550 million or earnings before interest and tax of S$600 million for the fourth quarter of FY2024 to March, driven by robust passenger demand and load factor, wrote Yap in a report published on Monday (Apr 29).

 

Core net profit is derived by excluding exceptionals and mandatory convertible bond (MCB) yield from net profit.

 

This core net profit for the quarter would only be slightly higher year on year as the rate of profitability increase would probably be the slowest for SIA in the past four quarters, noted Yap. This is in line with the existing trend of declines in passenger and cargo yields as well as rising operating cost pressure from supplier cost hikes.

 

But SIA should be able to deliver a 24.6 per cent improvement in its FY2024 net profit to about S$2.7 billion &ndash record-breaking for the airline group that includes budget carrier Scoot.

 

Yap expects the airline to pay a final dividend of S$0.38 per share, rendering the total payout ratio, including the interim dividend of S$0.10, at 53.1 per cent. However, he entertained the possibility of SIA sweetening the reward to S$0.42 a share for its final dividend &ndash or a payout ratio of 58 per cent &ndash as it had done in the last major cyclical earnings peak in FY2008.

 

SIA will release its financial results for FY2024 on May 15.

 

But SIA could report lower yields and higher operating costs going forward, as other airlines raise industry capacity and cost inflation takes effect.

 

The SIA group has not been able to fully restore its capacity to mainland China and is facing intermittent regulatory problems in flying to some cities, whereas its Chinese counterparts&rsquo capacity surpassed pre-pandemic levels, noted Yap.

 

SIA is expected to fully redeem the remaining S$1.5 billion worth of MCBs before Jun 24, after which the coupon rate will step up from 4 per cent to 5 per cent per annum. The carrier in 2020 and 2021 issued MCBs as part of the S$15 billion rights issue to tide the group through the pandemic, which decimated travel for two years. 

 

Yap lowered the target price of the stock to S$6.76 from S$7.30 in view of rising operating expenses and jet fuel prices.