(SELL, S$1.045, TP S$0.76)
CASA is applying to extend Tiger’s grounding till Aug 1 to which the latter says it will not oppose. Tiger Australia’s CEO will step down on July 31 with current Group CEO Tony Davis taking over. We estimate direct losses of S$32m (ie. S$23m in loss of ticket sales and S$9m in costs) arising from the ban. We believe recent events will have negative repercussions on demand hence cut our capacity assumptions by -2%/-6% for FY12/13, reduce our load factor by 4ppts to 81% which in turn reduces our traffic by -5%/-10% for FY12/13 respectively. Our earnings are cut by -66%/-50% for FY12/13. We are setting a fair value of S$0.76 for Tiger, based on 2x its FY12 price to book, which is the average that its LCC peers are trading at. This translates into 24x/14x FY12/13F P/E. Re-iterate SELL.
CASA seeks to extend grounding till Aug 1. Australia’s Civil Aviation Safety Authority (CASA) is applying to the Federal Court to seek an extension to Tiger’s grounding till Aug 1 to which Tiger says it will not oppose. The extension is to facilitate investigations over two incidents in June where pilots flew too low approaching Melbourne airports. Following this announcement, Tiger Australia’s CEO Mr. Crawford Rix will step down on July 31 with current Group CEO Mr. Tony Davis taking over. Meanwhile newly appointed Mr. Chin Yau Seng (ex-CEO of SilkAIr) will take the helm at Tiger Singapore. We view these management changes positively as it reflects Tiger’s commitment to resolve its current problems.
Impact on operating stats. We believe recent events will have negative repercussions on demand and hence prompt Tiger to delay delivery of two A320s in FY12 & FY13. We are cutting our capacity assumptions by -2%/-6% in FY12/13, reducing our load factor by 4ppts to 81%, which in turn reduces our traffic by -5%/-10% in FY12/13.
Financial impact. We estimate direct financial losses of S$32m arising from its prolonged grounding (S$23m in loss ticket sales & S$9m in costs). Our revenue is lowered by -5%/- 7% and net profit lowered by -66%/-50% for FY12 & FY13 respectively. There could be further downside risks to earnings from higher operational costs in terms of staff costs and higher marketing costs in an attempt to repair its reputation.
Re-iterate SELL. At last close, Tiger is trading at 34x/19x FY12/13F earnings and 2.8x/2.4x FY12/13F P/BV. We are setting a fair value of S$0.76 for Tiger based on 2x its FY12 P/BV, the current multiple that its LCC peers are trading at. This translates into 24x/14x FY12/13F P/E. Re-iterate SELL.
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