Singapore Airlines - Hedging and associate losses dampened earnings

SIA's full-year core net profit was 7% below forecast and 17% below consensus. 4Q09 pretax profit fell 95% yoy, on associate and fuel hedging losses. Lower yields and weaker load factors for both passenger and cargo caused revenue per unit of capacity to fall. A final tax-exempt DPS of 20 Scts was declared, below our forecast of 80 Scts. The positive surprise was a dividend-in-specie of SATS shares. Maintain TRADING SELL, although earnings estimates have been upgraded by 14-41% for a weaker US$ and our sum-of-the-parts target price has been lifted to S$9.60 (from S$7.60). Our previous target was based on an Asian-crisis P/BV multiple of 0.6x, but as the decline in forward bookings levels out, a higher 0.8x P/BV for the aviation business appears reasonable. To this, we add the realisable value of SATS based on our target price of S$1.37. Potential downside catalysts include continued weak demand and yields over the next year.

Singapore Airport Terminal Servs - Weak aviation outlook

SATS's 4Q09 net profit of S$42.2m (+37% yoy) was above our expectation of S$29m and consensus of S$28.5m, due to higher-than-expected contributions from SFI, a boost from the Jobs Credit Scheme (S$12.3m), and lower tax rates (7.3% vs. forecast 18.5%). A dividend of 6 Scts was declared, bringing full-year dividend to 10 Scts (6.5% yield). Topline grew 34% to S$326.5m as SFI contributed S$110.2m. Operating margins were flat at 14% while net margins declined to 12.9% from 19.7%. SATS also announced its contract renewal with key customer, SIA, for three years. Our FY10 EPS estimate has been raised by 19% to factor in the Jobs Credit Scheme and lower tax rates. Our target price has been raised to S$1.37, now based on 1x P/BV, from S$1.23 (previously sum-of-the-parts). Maintain Underperform on valuation grounds.

SIA Engineering Company Ltd - Still resilient

SIAE's 4Q09 net profit of S$66m (+21% yoy) was above our estimate and consensus thanks to stronger-than-expected revenue from line maintenance and fleet management (FMP). FY09 EBITDA margins inched up to 14.8% from 14.1% in FY08, due to better operating leverage from stronger revenue and a lack of special bonuses (as in FY08). Key weakness was lower-than-expected interest income due to a lower bank balance and lower interest rates. We raise our earnings estimates by 1-6% for FY10-11, to account for stronger FMP and line maintenance revenue. SIAE declared a lower FY09 DPS of 16 Scts for a payout of 67% (FY08: 80%). Maintain Outperform with a higher target price of S$2.97 (from S$2.40), still based on blended valuations but incorporating our earnings upgrade and a higher P/E target.

Comfortdelgro - Overtaken by cyclicals

CD's 1Q09 net profit of S$52.5m (+4.4% yoy) was in line with consensus and our annualised estimates (23-24% of FY09 estimates). Management guided that its performance should be maintained, although cautious in view of the downturn and potential further weakness of the A$ and ï¾£, and will further tighten costs and credit controls. Given receding risk aversion, defensive stocks like CD are unlikely to outperform the market. We have applied a 25% discount to our DCF valuation of S$1.84 to account for forex risks. We arrive at a new target price of S$1.37 (previously S$1.84), supported by a prospective CY09 dividend yield of 4.5%.