Tuesday, August 20, 2013

Tiger Airways Holdings Ltd - Is the turn-around story on track – which of the brokers is right?

Tiger Airways Holdings Ltd - Is the turn-around story on track – which of the brokers is right?
Investor Central
By Adrian Goh | Investor Central

14/8/2013 – Analysts are divided over Tiger Airways Holdings' turn-around story.

The airline narrowed its losses in Q1 FY2014 to S$6.2 mln, down from S$11.8 mln in the same quarter a year ago.

There were problems in all areas of the business.

Core Singapore operations were profitable, but the improvement from S$2 mln to S$6 mln was very small when you consider that capacity – as measured by Available Seat Kilometres – was up by 25%.

The Australian operations were still chalking up losses, despite the sale of a 60% stake to Virgin Australia.

And the Indonesian and Philippine operations – although improving – were not profitable.

Part of the reason was that Tiger had booked a S$20.6 mln loss from Indonesia which had sat on its books.

The analyst views are generally divided among those who believe in Tiger's turn-around story, and those who don't.

The company's financials for Q1 FY14 looked like this:

Revenue: +30.3% YoY to S$236.2 mln
Earnings: (S$13.7 mln) vs (S$32.8 mln)
Cash flow from operations: S$70,000 vs (S$10.5 mln)
Cash Reserves: S$345.1 mln vs S$117.3 mln
Dividend: None

The cash holdings were boosted by S$293.7 mln from a rights issue, which concluded and a preference share issue in April.

Bullish analyst report
Bullish analyst report

OCBC Investment Research has kept its BUY call and fair value estimate of S$0.79.

It expects passenger traffic to taper off in the seasonally weaker second quarter.

But with costs under control and even rising jet fuel prices having been factored into its forecasts, the deconsolidation of the troubled Australian business should mean the airline will report an operating profit.

Also on the upside, there are no further unrecognised losses from the company's associate, Tigerair Mandala.

DBS Group Research opines Tiger Airways Holdings should report stronger operating profits, especially with Tigerair Australia becoming an associate and Tigerair Singapore's fleet expansion.

It has lowered its price target to S$0.74 from S$0.79, but maintains its BUY call.

Bearish analyst report
Bearish analyst report

CIMB Research doesn't see any silver linings.

In its report titled "A challenging battle ahead", it no longer thinks FY14 will be profitable, and has downgraded its expectations in years ahead.

In Singapore, Tiger Airways' move to Terminal 2 from the now-closed Budget Terminal means passengers have to pay more per ticket.

In order to keep up demand, the airline has cut fares, which eats into profitability.

Tigerair Australia's 60% stake sale to Virgin won't do anything to improve competition, and despite management expectations of a turn-around profits will only likely start to roll in FY2017, says CIMB.

CIMB also notes that Tigerair Mandala has made notable progress in building a Singapore-Indonesia network.

But with limited landing slots and tough competition from Indonesia's other low cost carriers, and a similar situation for Tigerair Philippines, analyst Raymond Yap writes he is "not confident Tiger can turn these two cubs around anytime soon".

His call is an UNDERPERFORM with a price target of just S$0.60.

Investor Central. We keep your investments honest.

Question 1. What initiatives does Tiger have planned to compete for landing slots in Indonesia? Is this really an issue?

Question 2. How much of the problems in Singapore can be attributed to the higher taxes payable at Terminal 2?

Question 3. Does Tiger see any light at the end of the tunnel in relation to the higher airport taxes it has to pay at Terminal 2?

Question 4. Jetstar has started to offer business class in some aircraft on some routes. Does Tiger Airways intend to break with the current model in the same or similar way?

Question 5. Has there been a tangible business impact from the new Tiger Airways logo?

We have sent these questions to the company to invite them for an on-camera interview, and/or seek their written response.

Source/Extract/Excerpts/来源/转贴/摘录: investorcentral.org
/ Publish date:14/08/13

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