Tiger Airways Holdings Ltd – Deeper losses than expected (Philip)

Hold (Maintained)

Closing Price S$0.66

Target Price S$0.77 (+16.8%)

• Weak quarterly performance impacted by grounding in Australia

• Operating loss from Singapore came as a surprise

• Not expecting much from the upcoming peak travel season

• Expect deeper losses in FY12E

• Maintain Hold with revised target price of S$0.77

2QFY12 results discussion

Tiger Airways reported a very weak set of results for the quarter. Sales volume was impacted significantly, following grounding of its fleet in Australia. In our original forecasts, we had expected significantly higher average fares for the quarter due to the longer average sector lengths for the Group, as operations were dominated by its Singapore business. However, average fares declined by 22%y-y and was largely unchanged q-q. Ancillary fees also declined along with refunds to its customers in Australia after the grounding. Consequently, the Group reported an operating loss of S$41mn, as sales were not sufficient to offset the high operating expenses. The results for the quarter was also negatively impacted by S$8.4mn of one-time losses, related to the loss on disposal of aircrafts (S$4.3mn) and other exceptional items due to the grounding (S$4.0mn).

TAA still operating under restrictions

Tiger Airways Australia (TAA) is still operating under restrictions to only 22 sectors a day. With 10 aircrafts allocated to Australia, this restriction would certainly lead to significant under utilisation of its assets. Management guided that only 4 aircrafts are currently in operations, while the remaining 6 aircrafts are left idling.

Segmental performance

As expected, TAA reported losses following the grounding and stretching its operating losses for 1HFY12 to S$50mn. However, an operating loss for Tiger Airways Singapore (TAS) came as a surprise to us. As the company approach the peak travel season at the end of the year, passenger throughput is expected to increase. However, with the new routes being launched and low passenger yields, we doubt the Group would be able to turn in a meaningful profit for 2HFY12E. Consequently, we expected a net loss of S$72mn for the year.

Valuation

We value Tiger Airways using 13X FY13E EPS to arrive at our target price of S$0.77. Despite emerging value in the stock price, we believe that the outlook remains hazy and plenty of challenges lie ahead. We stay neutral on Tiger Airways.