(SELL, S$0.87, TP S$0.62)
Tiger Airways has signed a share subscription agreement for its proposed 33% stake in PT Mandala Airlines of Indonesia. Mandala is currently undergoing a financial restructuring process. Post restructuring, the largest shareholder in the airline would be the Saratoga Group with a 51% stake while the remaining 16% will be held by previous shareholders and creditors. The Saratoga Group is a private equity firm with over US$2b in AUM. We note that the airline will still need to gain regulatory approvals before flight operations can commence. The Group expects the process to take 90 days. Pending regulatory approval and further details, we make no change to our estimates. Maintain SELL with TP of S$0.62, pegged at 2x FY12F P/B.
Easing concerns of over-capacity. We view progress made in Indonesia positively although this is just the start of an uphill battle. Regulatory approvals will need to be secured after which Tiger will be facing a tough market. Nevertheless, our concerns of overcapacity and the probability of aircraft deferment will be eased. Tiger plans to increase its fleet in Singapore from 14 to 20 while maintaining its fleet in Australia at eight. It has two aircrafts leased to Philippines SEAIR. It plans to end FY12 with 35 aircrafts hence we believe its plans to allocate its five additional A320s to Indonesia.
Conflicting statements on Thai Tiger. It was reported in the press that Thai Airways Chairman briefed reporters that it will not be extending its MOU with Tiger Airways to set up Thai-Tiger now that it has obtained regulatory approvals for its own LCC, dubbed Thai Smile which is set to launch in July 2012. However, Tiger Airways later made an SGX announcement that talks are still in the works. At this point in time, we are doubtful Thai Tiger will materialise which is a blow to Tiger as Thailand represents a more lucrative market compared to Indonesia, given the under penetration of the LCC market.
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