A challenging battle ahead
Tigerair’s 1Q was poorer than expected, registering a core net loss of S$17m against our full-year profit forecast of S$15m, on unexpectedly large losses in Australia and at its Indonesian and Philippine associates as well as a surprising fall in Singapore passenger yields.
As a result, we downgrade our FY14 forecast to a loss and also reduce estimates for future years. We cut our target price as we change the basis of our valuation from 11x CY14 P/E (sector average) to 1x P/BV as the EPS cuts render the former method less usable. We downgrade to Underperform from Neutral, with de-rating catalysts from continued losses in Australia, Indonesia and the Philippines.
Highlights of 1QFY14
The Singapore business suffered a 5% yoy fall in yields as passenger resistance to the higher airport taxes coming from the 25 September 2012 move to Terminal 2 from the Budget Terminal (increase from S$18 to S$34/pax) necessitated a reduction in its fares to hold load factors up. As a result, Singapore delivered S$6m in operating profit, only S$2m more yoy despite ASK rising 25%. The Australian operations incurred a large S$17m operating loss despite massive improvements in its operating data as sector length-adjusted yields likely fell on heavy competition. Mandala contributed a loss of S$7.3m that was double last year’s 1Q despite its fleet size rising from two to nine planes during this period. Tigerair Philippines (formerly known as SEAir) contributed S$6m in losses as competition remains tough.
Australia to be profitable?
Although Tiger guided for “positive operating performance” after the sale of 60% of Tigerair Australia to Virgin last month, competition could hold back profits until FY17, in our view.
The hard slog
Mandala has made notable progress in building its domestic network and linking it to Singapore but Indonesia already has several large LCCs and additional landing slots at its congested airports are hard to get. The Philippines suffers from much the same issues. As a result, we are not confident Tiger can turn these two cubs around anytime soon.
Publish date: 23/07/13