TIGER AIRWAYS HOLDINGS LIMITED
Tigerair
J7X.SI
Tigerair (TGR SP) - 2QFY16 Earnings Preview: Expect An Uninspiring Quarter
- Tigerair will report its results on 23 October and we are not expecting any positive surprises. While load factors improved, we believe that Tigerair will still be in the red due to a weak pricing environment.
- Maintain HOLD. Target price: S$0.315. Suggested entry level at S$0.28.
WHAT’S NEW
• We expect Tigerair to report a S$6.0m loss for 2QFY16.
- We expect Tigerair to post revenue growth in 2QFY16, due to improved load factors and higher fares. Still, we do not expect Tigerair to reverse from an operating loss in the current quarter due to:
- existing fuel hedges, which should lead to about S$14m in hedging losses,
- higher maintenance costs, and
- weaker pricing power.
• Pricing power likely to have diminished in 2QFY16.
- In the previous quarter, Tigerair’s average fare rate rose by 6.8% yoy. We expect pricing power to have diminished somewhat in this quarter due to weakness in regional currencies. About 25% of Tigerair’s capacity is slated towards Indonesia and Malaysia, whose currencies have weakened substantially in the past quarter.
- Jetstar Asia’s aggressive capacity addition (about 20- 25% in 3Q15) for routes out of Singapore could also have impacted Tigerair’s pricing power.
STOCK IMPACT
• Downside risk to earnings estimate as well as stock price.
- Based on our estimates, Tigerair is likely to report a S$7.7m loss for 1HFY16. This compares unfavourably with consensus and our full-year estimates of S$35m and S$51m respectively. Thus, unless pricing power improves in 2HFY16, there will be downside risk to our and consensus estimates.
• Tigerair’s planned joint operation with Scoot for Singapore-Guangzhou sector is not necessarily positive.
- From 16 January, Scoot will fly to Guangzhou daily, using the B787 Dreamliner. Tigerair also operates a daily flight. We believe there will be higher demand for Scoot’s product offerings, given that the aircraft offers in-flight entertainment. This could impact Tigerair’s pax loads in the sector.
EARNINGS REVISION/RISK
- No revision to our earnings forecasts as yet. Weak pricing environment will be the key risk.
VALUATION/RECOMMENDATION
• Maintain HOLD and target price of S$0.315.
- We remain neutral on Tigerair and do not envisage much upside from the current levels. If at all, we believe that market could be disappointed with earnings.
- Maintain HOLD with suggested entry price at S$0.28.
K Ajith
UOB Kay Hian
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http://research.uobkayhian.com/
2015-10-22
UOB Kay Hian
SGX Stock
Analyst Report
0.315
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0.315
