TIGER AIRWAYS HOLDINGS LIMITED
Tigerair
J7X.SI
Tiger Airways Holdings - Seasonally weak 2Q but turnaround still on track
- 2Q16 net loss of S$12.8m represents substantial improvement from the S$182.4m net loss in 1Q15.
- Performance slightly below our expectations but turnaround is still on track.
- Lower fuel costs and higher yields to drive a stronger 2HFY16.
- Maintain BUY, S$0.36 TP.
Highlights
Seasonally weak 2Q16 but much better y-o-y
- Tigerair reported an improved set of 2Q16 numbers, with a net loss of S$12.8m (-93% y-o-y) vs S$182.4m in 1Q15. However, this was slightly below our expectation of breakeven earnings of S$1.9m mainly due to higher costs, especially maintenance charges, which were attributed to:
- the ageing of the fleet,
- one-off costs of S$1.6m to meet delivery conditions required by IndiGo, and
- appreciation of the US$ vs S$.
- At half-time, Tiger has booked revenue of S$336.2m (+5% y-o-y) and an operating loss of S$9.9m, which is much better compared to the loss of S$41.7m a year ago, but still below our expectations of S$12.5m operating profit.
Outlook
Stronger 2H as lower fuel costs drive earnings recovery
- Looking ahead, as we move into the seasonally peak quarter ended Dec (3Q16) for Tigerair, we expect a much stronger second half for the carrier, primarily as much lower all-in fuel costs should drive earnings recovery for the carrier. Tigerair has hedged about 40% of its fuel requirements for the next 15 months at US$76.15/bbl vs the current price of US$60 and our assumption of US$75. Taking into account 1HFY16 numbers, and after adjusting for lower fuel price assumptions ahead, we revise our FY16/17 forecasts by -8% and +6% respectively and adjust our TP to S$0.36.
Valuation:
Share price to rebound as earnings recover.
- We believe the key catalyst for Tigerair's share price to rerate towards our TP of S$0.36 (based on 7x FY15/16 EV/EBITDAR) is for the airlines to deliver sustained earnings improvement.
Key Risks:
Vulnerable to demand shocks.
- Airlines are susceptible to demand shocks, which could include pandemics, terrorist attacks as well as economic crises. In Tigerair's situation, they are largely exposed to the economic and demand environment for S.E. Asia, China and Australia.
Higher fuel prices would hit earnings.
- The Group's razor- thin profit margins would be negatively impacted if fuel prices were to climb higher significantly. Each US$1 increase in jet fuel price per barrel would decrease the Group's net profit by c.S$2m, all else being equal.
Paul Yong CFA
DBS Vickers
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http://www.dbsvickers.com/
2015-10-23
DBS Vickers
SGX Stock
Analyst Report
0.36
Down
0.38
