Tiger Airways - OCBC Research 2015-10-23: 2QFY16 Still Unprofitable

Tiger Airways - OCBC Research 2015-10-23: 2QFY16 Still Unprofitable TIGER AIRWAYS HOLDINGS LIMITED Tigerair J7X.SI 


  • Narrowed core net loss 
  • Turnaround plan making progress but much more to be done 
  • Weak outlook; maintain SELL 

Yet another unprofitable quarter 

  • Tiger Airways (Tigerair) remained in the red even as 2QFY16 results improved on a YoY basis with net loss reduced 93% to S$12.8m, mainly due to absence of exceptional items such as provision for onerous aircraft leases. 
  • Stripping out one-off items, 2QFY16 core net loss declined 57% YoY on the back of a 12.8% revenue growth to S$167.9m, driven by 8.2% improvement in yields and 1.1% growth in traffic. 
  • While fuel costs dropped 19.8% YoY, the cost savings were eroded as 2QFY16 operating expenses rose 2.4% to S$178.3m on: 
    1.  higher aircraft maintenance charges, 
    2.  higher aircraft rentals, and 
    3.  appreciation of USD against SGD. 
  • For 1HFY16, core net loss narrowed 41% YoY to S$14.4m, driven by 4.9% revenue growth (improved yields) and 4.5% decline in total operating expenses (lower fuel costs). 

Still in pursuit of turnaround 

  • Post-restructuring, Tigerair has since disposed all its overseas businesses and now only operates out of Singapore. As part of its turnaround plan, it continues to focus on returning to profitability through capacity rationalization, strategic alliance with overseas partners, and more importantly, increase collaboration with SIA group. 
  • Most recently, Tigerair announced expanding cooperation with Scoot to jointly operate Singapore-Guangzhou services to better match capacity to demand. 
  • Another positive progress worth noting is the approval of its strategic alliance with Philippines’ Cebu Pacific by the Singapore government, which allows deepened collaboration providing increased connectivity for their customers – a win-win situation for both airlines. 
  • Going forward, we expect Tigerair to continue its pursuit of turnaround by leveraging on synergies with SIA group but there is much more to be done, in our view. 

Weak outlook; maintain SELL 

  • Overcapacity in this region continues to be a concern for Tigerair. According to CAPA, Southeast Asia has the highest ratio of orders to current fleet at 0.9, and LCCs account for more than 70% of these aircraft orders. 
  • Consequently, on cloudy outlook and incorporating 2QFY16 results, we cut our FY16/17F PATMI by 73%/26%, respectively. 
  • Maintain SELL with a new FV of S$0.27.

Eugene Chua OCBC Securities | http://www.ocbcresearch.com/ 2015-10-23
OCBC Securities SGX Stock Analyst Report SELL Maintain SELL 0.27 Same 0.27