Tiger Airways - RHB Invest 2015-11-09: SIA Offers To Buy Tigerair’s Minorities

TIGER AIRWAYS HOLDINGS LIMITED Tigerair J7X.SI

Tiger Airways (TGR SP) - SIA Offers To Buy Tigerair’s Minorities

SIA has made a voluntary conditional offer to acquire all of Tigerair’s shares it does not currently own with an intention to delist and privatise the budget airline.
Recommend investors to ‘accept the offer’ (TAKE PROFIT, from Neutral) and raise to SGD0.41 TP (from SGD0.30).
It has offered SGD0.41 for each Tigerair share and an option to subscribe 0.036 SIA shares at SGD11.1043 for each share held in Tigerair.
The offer values Tigerair at USD721m, which we deem fair.

Singapore Airlines (SIA) (SIA SP, NR) has offered SGD0.41 per share for all shares in Tigerair that it does not own (1,105.2m shares) and also for all shares converted on the exercise of perpetual securities (26.7m shares) and outstanding options (19m shares). SIA intends to fund SGD471m, maximum amount payable, from its internal cash balance. The offer also includes an option to subscribe 0.036 SIA shares at SGD11.1043 subject to the offer becoming unconditional.

SIA’s offer is conditional upon:
1. SIA owning more than 90% of Tigerair by the close of the offer, and
2. SIA securing in-principle approval for the dealing in, listing and quotation for the new SIA shares to be issued in connection with the offer.

While we do not cover SIA, Bloomberg’s consensus 12-month TP of SGD11.93 (seven BUYS, nine HOLDS and two SELLS) implies only 7% upside. Amidst a limited upside to SIA’s share price over the next 12 months, we prefer taking cash on offer.

In our initiation report Ready (Again) For Take Off dated 15 Sep, we stated that SIA becoming Tigerair’s largest shareholder and parent was the key element for the latter’s turnaround and growth. Tigerair becoming 100% subsidiary would enable SIA to expedite the turnaround. While a merger of Tigerair and Scoot would bring cost savings, management plans to keep the entities separate.

SIA’s offer of SGD0.41 is 37% above our previous SGD0.30 TP and values Tigerair at 20.3x FY17F P/E (Mar) and 3.6x FY17F P/BV, while regional lower-cost carriers (LCCs) are trading at 4.7x-16.4x FY16F (Dec) P/E and 0.65x-1.13x FY1F6 P/BV.

Shekhar Jaiswal RHB Research | http://www.rhbinvest.com.sg/ 2015-11-06

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