Tiger Airways Holdings Limited - Can it really turn around?

14/11/2014 – Tiger Airways expects yield and load factors to remain under pressure.

It will continue to focus on managing costs, optimising yields and rationalising its service network.

But OCBC Research has maintained its SELL rating with a target price of S$0.21.

With a tremendous drop in book value, it has changed its valuation methodology to EV/EBITDA instead Price-to-book.

However, it will review its estimates again when the rights issue is approved.

CIMB Research maintained a REDUCE rating and expects the share price to drop by 70% to S$0.097.

The company just announced earnings for Q2 FY15:

Revenue: -10.5% to S$146.7 mln
Operating profit: (S$25.3 mln) vs (S$12.8 mln)
Profit: (S$182.4 mln) vs S$23.8 mln
Exceptionals: (S$159.9 mln) vs S$58.8 mln
Cash flow from operations: (S$34.5 mln) vs S$35,000

The Group posted an operating loss due to weaker operating results of Tigerair Singapore.

Tigerair Singapore reported an operating loss of S$31.3 mln as a result of a 10.4% decline in yields, and 3.1% increase in unit cost.

The results were further worsened by the S$99.3 mln provision for onerous aircraft leases, mainly S$93 mln from its IndiGo deal, and the S$59.8 mln loss on planned disposal of a joint venture.

Investor Central. Asian insights for global investors. We ask the tough questions of Asian companies which global investors need answers to.

Question

1. Can Tiger Airways really turn around?

OCBC Research is of the view that the recent decisions taken by Tigerair are part of its efforts to turn the business around for long-term sustainability.

But it is a very expensive one.

It is also starting to see the alignment of interest between Tigerair and SIA’s Scoot and it believes this will allow Tigerair to fully leverage on the Anti-Trust Immunity granted to the Tigerair-Scoot alliance in order to grow.

As part of the anti-trust immunity, the two airlines will be able to collaborate on pricing, sales, scheduling and other matters.

However, the analyst believes that the regional overcapacity issue, although improving, will continue to cause downward pressure on yields.

Hence, it thinks the turnaround has a long way to go and it does not expect Tigerair to turn profitable until at least after FY16.

Question

2. Does it have any plans to merge with Scoot?

With the previous transaction involving Tigerair’s sale of its 60% stake in Tigerair Australia to Virgin Australia only completed in July last year, Tigerair recently announced that it had reached an agreement to sell its remaining 40% stake in Tigerair Australia to Virgin Australia for A$1.

Following the sale, Tigerair will continue to receive franchise revenue though a branding agreement.

According to management, there is no termination of convenience clause in this agreement, and this essentially allows Tigerair to lock in the franchise revenue stream for the length of the agreement.

OCBC Research believes the divestment allows management to direct its resources and refocus towards the alliance between Tigerair and Scoot, which it sees potential in growth if coordination between them pans out well.

(Read the full story to get all 5 questions)

We have invited the company to an on-camera interview, and/or to reply to our questions in writing.

At the time of publication we have not received a reply (which is why you are seeing this message).

We will update this report if we do.

Legal notice

While our purpose is to ask the questions which the man on the street would ask, and to help the everyday investor make informed investments, please note that:

Our reports and presentations (‘our contents’) are not investment advice nor should they be construed as investment advice or any recommendation of any kind; nor meant to cast allegations or insinuations of any kind against any individuals or entities. Before acting on the material in our contents, you should either seek independent advice tailored to your particular circumstances and intentions or rely on your own judgement.

Our reports and presentations express our observations, opinions and theoretical analysis based on the facts that we have gathered or have been provided to us. While we endeavour to ensure that our contents are accurate and are presented in good faith, we cannot and do not warrant the accuracy, adequacy or completeness of the material or that the material is suitable for its intended use; and we disclaim any such warranties express or implied that may be presumed by any party; neither do we take responsibility for the views of companies or other stakeholders or observers or sources quoted or hyperlinked in our contents. While every precaution has been taken in the preparation of our contents, we (and our principals) shall not be liable for any losses or damage or inconveniences due allegedly to errors or omissions in any facts or due allegedly to reliance on our contents in any way whatsoever; nor for any damage to any computer hardware, date information or materials allegedly caused by our contents.

All expressions of opinion and observations in our contents are subject to change without notice and we do not undertake a duty to update and supplement our contents or the information contained herein in the event we obtain any further or more complete information.

©2014 Investor Central® - a service of Hong Bao Media