Stock Review: Singapore Airlines

I last reviewed SIA in Feb 2017. Prices have since went on a roller coaster ride and it's now $9.56, last done last friday. The lowest was $9.50 on 13 and 16 Aug 2018.

Profit Margin
Profit Margin is still lean, but an improvement from previous review,
FY17 = 892.9/15806.1=5.65%
FY16 = 360.4/14868.5=2.42%
Q12018 = 149/3844.5=3.88%
Q12017 = 346.5/3864.2=8.97%

Fuel costs have been rising and adding to costs. In 2016 and 2017, fuel costs form 25% of revenue.
FY17 = 3899.3/15806=24.7%
FY16 =3747.5/14868.5=25.2%
Q12018 = 1079.4/3844.5=28.1%
Q12017 = 925.7/3864.2=24.0%

Clearly, fuel costs ate into their margins in Q12018.

Return on Assets (= Net Income/Assets)
SIA is constantly buying aircraft. They boast a young fleet with average age under 5 years old. I chose to divide by the Property, Plant and Equipment figure as it is likely referring to the aircraft, instead of total assets, which includes other investments. For this calculation, I prefer to use the more conservative net income instead of operating profit because debt is used to finance the aircraft purchase.

FY17 = 892.9/19824.6=4.5%
FY16 = 360.4/16433.3=2.2%

Overall, it's still not an effective use of the aircraft, but I guess we can say that the new aircraft may be a draw for customers.

Dividend Sustainability
Free Cash Flow per share is even more negative now at -$1.03 in Q12018. Dividend payouts are funded by debt. Although they paid a dividend of 40 cents for 2017, a yield of 4.2%, I am not attracted to it. As a whole, SIA may have been watching their costs, but I just don't think their increasing debt is a good thing.

The writer does not own any SIA shares.

References:

• Financial Report Q12018, ended 30 Jun 2018
• Financial Report Q42017, ended 31 Mar 2018