Sia

FINANCIAL STATEMENT ANALYSIS

In order to get a comprehensive analysis on SIA's financial statement analysis , we compared SIA's 5 financial year ending(FYE) results with the industry's average and 2 of its main competitors Cathay Pacific Airways and Qantas Airways . Cathay has been trailing closely to SIA in terms of first class cabin service and profitability for years. Qantas has long been dominating the highly profitable Kangaroo route and is ranked 5th in the world by Skytrax's survey . Please refer to appendix for the actual figures for every analysis below.

Liquidity Analysis

Current Ratio: SIA's current ratio is more than 50% above industry average and its competitors showing SIA's strong liquidity position in meeting its short term obligations. However, with the aggressive acquisition of 19 A380s, its current ratio is expected to drop in the next few years. This might not be a concern as the A380s is expected to bring more benefits than costs to SIA which will be explained in the next section.

Operational Efficiency Analysis

Assets Turnover Ratio: SIA's recorded significantly lower asset turnover ratio compared to the industry average and its competitors, showing that SIA is relatively ineffective in utilising its assets in generating sales.

Receivables Turnover: With a lower receivables turnover ratio than the industry, SIA should consider reviewing its credit policies to ensure timely collection of imparted credit that is not earning interest for the firm.

Profitability Analysis

Sales: SIA's revenue has been increasing for the last 2 years since FYE2005. However, this growth has slowed down from double digit growth to 8.6% recently. This is not a concern as SIA is still considered as one of the more profitable companies in the industry as shown in its Net Income and Operating profit ratios. With the new addition of A380s they will also be able to charge higher prices.

Return on Assets/Equity/Invested Capital: SIA's ROA is 4 times above industry average and significantly higher than its competitors. Its ROE and ROIC is also significantly higher than the industry. All 3 ratios have surpassed Cathay recently. This shows SIA management's capability in providing high returns for its shareholders now and the future.

Capital Structure Analysis (Solvency)

Debt to equity ratio: SIA's D/E ratio is significantly lower than the industry average and its competitors. It is financing its growth mainly with equity giving it a lower exposure to risks associated with interest rates.

Market Value Analysis

EPS: SIA's current EPS has doubled since 2003 and is significantly higher than its competitors. With the recent capital reduction exercise , SIA's EPS will be enhanced and investors can expect higher returns in future years.

Dividend yield: In addition to its high EPS. Dividend yield more than doubled from 3% to 6.5%.

PE Ratio: Despite the rising trend of SIA's stock over the past few years , its PE ratio is still relatively low compared to the industry average and Cathay's. This shows that there is still upside potential in the stock price. Various analyst reports have rated SIA's stock to outperform until its P/E ratio of 15X .

Economic Value Added: SIA's has a negative EVA. This might be due to its high dependency on financing through equity (92.64%) rather than debts. Financing by equity is highly costly and non tax deductible, thus the company could have had better EVA by taking advantage of the increased profits that financial leverage brings.

Company Risk Analysis

Altman's Z-Score: This is the test for predicting bankruptcy of a company. SIA scored 2.92 which categorizes it well above the category of 'unlikely to turn bankrupt', and well above its competitors.

Beta Coefficient: Its adjusted beta for FYE2007 is at 0.835 indicating its low volatility compared to the market.

Others

In addition, SIA's other indicators such as Available Seat Km (ASK) , No. of destination cities, Revenue Passenger per Km (RPK) , Seat Capacity per employee have increased. These increased capacity and destinations indicates more upside for increase in revenue in the future.

All in all, the above analysis has shown that SIA is highly profitable, low risk and low volatility. Its FYE2007 results are impressive. Many of its ratios have made a turning point and surpassed Cathay in FYE2007. With the addition of A380, SIA's profitability is expected to improve further.

INDUSTRY ANALYSIS

The world economy is growing at a solid 4Ñ*% per annum and is expected to rise. Expanding global trade and improving domestic productivity contribute to rising wealth over the long term, which translates into improved demand for air services (RPK expected to grow 5% annually ). The industry shows huge potential for further growth. Generally, most airlines are reporting increasing profits, attracting new airlines to enter the industry .

As the level of affluence has increased, SIA's prices have become more affordable. With SIA's plans to increase its fleet size, the company will be in a good position to benefit from the growing demands for air travel.

Rosy outlook in the Asia Pacific region

Following a downturn in revenue in 2003, the Asia Pacific region has been showing healthy growth. Overall, air traffic in Asia-Pacific will increase at a rate 1.8 times higher than that of economic growth (GDP) - in comparison to the multiplier of 1.6 for the world as a whole . This is largely a result from the increased economic activities in China and India. In Southeast Asia, RPK is projected to grow by 5.9% annually over the next 2 decades23, driven by the region's growing economic development and increased tourism demand. The