To The Moon

Since the doubling of capacity and historic high profits in the super-strong 2023 fiscal year (ending March 31, 2023), $SINGAPORE AIRLINES LTD(C6L.SI)$ stock price has risen more than 7% in the five trading days after the financial report released, reaching a new high since the pandemic low point in 2020. A recovery of Covid-19 FY23 (April 2022 to March 2023) SIA record revenue of SGD17.78 billion, a YoY increase of 133%; operating profit of SGD2.69 billion, an increase of SGD3.3 billion YoY; net profit of SGD2.16 billion, an increase of SGD3.12 billion YoY. Total expenses were SGD15.01 billion, with fuel costs increasing by 147% YoY due to rising oil prices to reach SGD5.96 billion; however, excellent hedging transactions won back SGD750 million so that overall fuel costs were at SGD5.21 billion. Operating profit was at a record high for SIA's history at SG$2.69bn reversing last year's loss-making position while also distributing large bonuses equivalent to up to six months' salary for eligible employees as part of their gratitude package. From an operational perspective, Singapore Airlines and its budget airline Scoot transported a total number of passengers amounting to over twenty-six million people - six times higher than last year - which increased up to seventy-nine percent compared with pre-pandemic levels before COVID-19 broke out. Investment highlights 1) Strong travel demand and China's economic recovery. Since China lifted restrictions on international flights from its country market analysts believed that opening more international routes would bring new competition for Singapore Airlines such as $CATHAY PAC AIR(00293)$ from Hong Kong but instead it brought opportunities across all airlines due to surging demand resulting in unit revenues growing strongly along with load factors. This allowed Singapore Airlines to pass on the cost of rising fuel prices by increasing ticket prices, resulting in a strong unit revenue and load factor growth that led to a 133% increase in revenue. 2) The passenger load factor has only recovered to 79% compared with January 2020 levels, indicating potential for further growth. SIA expects its passenger load factor to rise from 79% in FY24H1 to 83%, driven by more international routes and strong growth in China's market network. 3) However, cargo business declined by twenty-five percent YoY due mainly to increased macroeconomic uncertainty and additional freight capacity which also pushed down overall yield rates. Nevertheless, loading factors remain below pre-pandemic levels but still have strong yields. Compared with North American airlines. From stock price performance over the past two years before COVID-19 (2020-2021), Singapore Airlines' performance was similar to US airline industry ETFs such as U.S. Global Jets ETF (JETS). However, SIA's performance was far better than JETS during 2022 because of: 1) More efficient and flexible pandemic management policies implemented by Singapore; 2) Excellent fuel cost hedging that reduced the impact of rising oil prices; 3) Lower debt ratios that improved operational efficiency during tightening cycles; 4) Carrying more Chinese travel demand becoming an important transit hub. In terms of operating efficiency over the past twelve months based on revenue and average profit margins, SIA's twelve percent is much higher than the US average peers'. Fuel costs were also lower than industry averages especially during Q4FY22 & Q1FY23 periods. Valuation Relative to other major competitors such as $American Airlines(AAL)$ $United Continental(UAL)$ $Delta Air Lines(DAL)$ although TTM industry average profit multiples are relatively high since Chinese companies have not yet returned profits; SIA's cash flow is more abundant, and its debt ratio is lower, resulting in a relatively lower EV/EBITDA. However, Singapore Exchange liquidity cannot match that of the US market; therefore, there may be some liquidity discounts. Overall, SIA is no longer an opportunity to buy low since business performance faces pressure from cargo operations while passenger performance may also be affected by global macroeconomic conditions. Nevertheless, the company has high operational efficiency with unit costs and fuel costs decreasing while China's recovery provides further growth opportunities for Singapore Airlines. Future profits will vary depending on seasonal changes but as a stable airline industry configuration choice, SIA remains a good option.