Tiger Airways - RHB Invest 2015-10-26: Continues On The Recovery Path

TIGER AIRWAYS HOLDINGS LIMITED Tigerair J7X.SI

Tiger Airways - Continues On The Recovery Path

1HFY16’s SGD14m net loss was higher than our estimate on higher-than-expected maintenance costs and fuel hedging losses yet, Tigerair posted a fourth consecutive quarter of YoY yield improvement in 2QFY16 and is on track to report maiden profit in FY16 with strong growth in FY17.
Downgrade to NEUTRAL post a recent rise in share price as we lower FY16F-18F earnings by 7-63% and revise our TP to SGD0.30 (from SGD0.32, 3% downside).

Tiger Airways Singapore (Tigerair) has had a disappointing 1HFY16, with reported losses exceeding our estimates. The airline witnessed a sharp increase in maintenance costs, compounded by:
1. increased provisions resulting from accounting changes,
2. one-off costs related to the sub-leasing of aircraft to Indigo Airlines, and
3. sharp appreciation in the USD against the SGD.
Tigerair also reported a higher-than -estimated jet fuel hedging loss.

Ridding off loss-making overseas operations, a rationalised fleet size and the removal of non profitable routes has enabled Tigerair to report its fourth consecutive quarter of YoY yield improvement.
The magnitude of losses has also reduced, as it posted a SGD12m loss in 2QFY16 (2QFY15: SGD182m loss). As 3Q of its financial year is a seasonally peak quarter, Tigerair could report continuing yield improvements amidst the addition of a new destination in India and the return of services to an old destination in China.

We maintain our view that Tigerair is on track for earnings recovery after four years of losses. We expect the airline to deliver strong growth in FY17, aided by low fuel prices and yield improvements. Its average hedge fuel price has dropped to USD76/barrel (bbl) from USD119/bbl in the last four quarters.
With no expansion planned for its rationalised fleet of 23-24 aircraft, and benefits from its close tie-up with Singapore Airlines (SIA SP, NR) and its affiliates, should support elevated load factor and yield improvements.

Amidst reduced earnings estimates, we lower TP to SGD0.30, which continues to be based on 6x 2016F EV/EBITDA.
We downgrade to NEUTRAL as Tigerair’s share price has moved up 11% since mid-September.

Shekhar Jaiswal RHB Research | http://www.rhbinvest.com.sg/ 2015-10-26

RHB Research SGX Stock Analyst Report NEUTRAL DOWNGRADE BUY 0.30 Down 0.32