Share Price S$0.62
Target Price S$0.55
1QFY14: Singapore Operations Disappoint
Singapore operations were expected to be the silver lining, which could potentially boost earnings. However, the 5.0% decline in yields for Tigerair Singapore burst that bubble. We cut our FY14 net profit estimate by 29% and reduce our target price by 10% to S$0.55. Maintain SELL.
• Operating profit trend reversed as Singapore yields declined. The S$6.2m operating loss vs our expectation of an S$13.2m operating profit was due primarily to a 5.0% decline in yields for the Singapore operations. This stood in contrast to our assumption of a 3.5% rise in yields for the group (4QFY13: +7.0%) The decline in yields was attributed to a lack of pricing power following a S$6.00 increase in passenger service charge (PSC) by Changi Airport. The average fare of Tigerair Singapore was flat at S$132.80 despite a near 5.0% higher stage length.
• Tigerair Australia losses narrowed. Despite achieving an extremely high load of 87.3% and marginally higher yields, Tigerair Australia’s recorded an operating loss of S$17.3m (-17.7% yoy).
• Total capacity rose 30% yoy but breakeven loads fell by just 1.0ppt. The numbers suggest that Tigerair is not benefitting from any operating leverage arising from higher volume. With yields declining, the outlook has become murky.
• Tigerair will consolidate two more months of Tigerair Australia’s results and subsequently equity account any losses
• Associates dragged earnings again. Tigerair recognised S$26.6m in associate losses - S$7.3m from Tigerair Mandala, an additional S$13.0m from previous unrecognised losses and S$7.3m in losses from Tigerair Philippines.
• Rights issue by Tigerair Mandala. Tigerair participated in the rights issue by converting S$26.0m of shareholder loans as capital. It is unclear if the move will result in Tigerair’s achieving a higher stake in the associate. The rights issue is expected to be completed by 26 July and Tigerair will announce its shareholding stake in Tigerair Mandala and as to whether it will participate via further equity injection.
• Operating cash flow positive, but barely. Despite recording S$236m in revenue, Tigerair generated just S$70,000 in operating cash flow. The airline sold two aircraft for S$102m via a sale-and-leaseback.
• Market will be surprised by the decline in yields and further investment in Tigerair Mandala. The inability to pass on the S$6.00 in fare increase is quite telling and clearly shows the lack of pricing power. Tigerair thus appears to have little choice but to compete on volume, a strategy that is fraught with risk. Meanwhile, the continued losses by the associates and the prospect of further equity injection into loss-making associates is unlikely to add much confidence..
• We cut our FY14 net profit forecast by 29% after lowering our yield assumption by 4%.
• Maintain SELL with a lower target price of S$0.55 (from S$0.61), or 1.4x FY14F book value, excluding perpetual securities.
Source/Extract/Excerpts/来源/转贴/摘录: UOB Kay Hian research
Publish date: 23/07/13