Tiger Airways - OCBC Investment 2016-01-25: Outlook remains challenging

Tiger Airways - OCBC Investment 2016-01-25: Outlook remains challenging TIGER AIRWAYS HOLDINGS LIMITED Tigerair J7X.SI 

Tiger Airways: Outlook remains challenging 

 3QFY16 improved on lower jet fuel price 
 Yields still facing downward pressure 
 Ceasing coverage 

3QFY16 airline revenue came in weak 

  • Tiger Airways (Tigerair) recorded a 3QFY16 core PATMI of S$7.7m compared to S$2.0m in the same period a year ago, largely driven by lower jet fuel costs. 
  • 3QFY16 revenue rose 1.5% YoY to S$187.4m, mainly helped by a 8.0% growth in lease rental income from Tigerair Australia and Taiwan but partially offset by a 3.3% decline in revenue from airline operations following a 1.6% decrease in capacity. 
  • While Tigerair registered a 1.1ppt YoY improvement in passenger load factor 83.1%, yields fell by 1.4% and contributed to the drop in airline revenue. 
  • 3QFY16 expenses decreased 1.7% YoY to S$177.3m due to a 33.3% plunge in actual fuel costs but partially offset by a 27.0% increase in fuel hedging loss. 
  • Fuel savings was also partially eroded by higher maintenance charges (+34% YoY) and higher aircraft rentals (50.9%). 

Further decline in jet fuel costs to help 

  • Management has stated that Tigerair is expected to continue to benefit from the low fuel price environment but also expects uncertain macroeconomic conditions to remain, in addition to overcapacity in the region. 
  • According to CAPA, as of 1 Jan 16, the total current fleet size of LCCs based in Southeast Asia is 609 aircraft, with 1,137 more in the pipeline. 
  • While SEA’s LCCs fleet growth rate has slowed from 20% in 2013 to 13% in 2015, we think the current uncertainty over global economic growth certainly does not help in driving demand up at the same pace, at least not in the near-term. 
  • We believe weak airline revenue will persist as yields continue to face downward pressure. That said, we also expect Tigerair’s progressive decline in its fuel hedging price to help offset the top-line weakness. 

Low market liquidity post 

  • SIA unconditional offer With the acceptance level for SIA’s offer now at 85.6%, we are ceasing coverage on Tigerair given the expected low market liquidity post acquisition.

Eugene Chua OCBC Securities | http://www.ocbcresearch.com/ 2016-01-25
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