A weak 3QFY14 is likely priced in. Still, Tigerair’s efforts to manage capacity and the recent shift to North Asia have to be lauded as it will be partnering with a much stronger principal than in Southeast Asia. Aside from lowered risk, Tigerair will also receive higher lease income from the new venture.
Maintain HOLD.
Target price lowered from S$0.58 to S$0.54. Suggested entry level: S$0.47, based on 15% required return.
• Expect disappointing earnings. Tigerair will report 3QFY14 results on 24 January. We expect the airline to post an operating loss of S$15.8m, reversing from 3QFY13 operating profit of
S$17.9m. A 9.8ppt yoy decline in loads coupled with weak yields should lead to operating losses. Load factor (PLF) for 3QFY14 was the lowest in three years. Consequently, we expect yields to have remained depressed and assume a 12% yoy decline but a 3% qoq improvement.
• Associate contribution remains a wild card. In 2QFY14, Australian, Philippines and Indonesian associates registered a cumulative loss of S$24.0m and also showed impairment losses of S$48.3m. Tigerair Philippines is likely to show better earnings qoq as PLF improved 9.1ppt in Nov- Dec 13.
• Cash flow will be critical. Tigerair’s divestment of the Philippines unit was aimed at stemming cash burn and as at Sep 13, it would have lost a total of S$98.5m. Post divestment, cash flow is likely to improve. Notably, Tigerair continues to sell and leaseback (SLB) aircraft. For example, in 2QFY14 Tigerair disposed of S$113m worth of assets amounting to 14.5% of PPE. The divestment of Tigerair Philippines and further SLB will improve cash flow. In 1H14, Tigerair registered FCF of S$30.0m despite posting losses.
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