Tuesday, January 14, 2014

Tiger Airways - Strategic alliance with Cebu Pacific; Sells TigerAir Philippines to Cebu (CS)

Tiger Airways
Price (07 Jan 14 , S$) 0.52
TP (prev. TP S$) 0.47 (0.47)
Maintain UNDERPERFORM
Strategic alliance with Cebu Pacific; Sells TigerAir Philippines to Cebu

● Tigerair is forming a strategic alliance with Cebu Pacific (Cebu) to collaborate on international and domestic routes from the Philippines. This is part of Tigerair’s asset light alliance strategy to accelerate growth without stretching its balance sheet.


● Tigerair plans to sell its 40% stake in Tigerair Philippines (TAP) to Cebu for S$9 mn. Going forward, airlines will brand themselves as partners and cross-sell tickets on all routes operated by both airlines on their respective websites. Tigerair hopes to completed the transaction by end-March 2014.

● FY14 EPS cut by 47% by due to expected SS$14 mn loss from the sale of TAP, but FY15-16 EPS raised by over 100% due to lower associate losses.

● These initiatives are potentially positive for Tigerair, but have a long gestation period. We do not expect these to significantly impact its near-term EBITDAR. Maintain UNDERPERFORM.

Strategic alliance with Cebu Pacific
Tigerair is forming a strategic alliance with Cebu Pacific (Cebu), whereby both airlines will collaborate commercially and operationally on international and domestic routes from the Philippines.

This move is part of Tigerair’s regional asset light alliance strategy to accelerate growth in the region without stretching its balance sheet. Last month, Tigerair announced an interlining agreement with SpiceJet to expand its reach in India and took a 10% stake in a Taiwanese JV to increase its North Asian presence.

Selling Tigerair Philippines (TAP)
Tigerair plans to sell its 40% stake in Tigerair Philippines (TAP) on a ‘zero debt basis’ for S$8.9 mn (US$7 mn) to Cebu, who will also acquire the remaining 60% of TAP from the existing local shareholders. Tiger’s shareholder advances of S$85 mn to TAP will be converted to shares prior to the sale. TAP’s two A319s will be returned to Tigerair Singapore and its three A320s will be sub-leased to Cebu (subject to further negotiations).

Under the alliance, it is envisaged that Tigerair Singapore will take over TAP’s international routes between Singapore and the Philippines, with Cebu to operate all the domestic flights. Both airlines will brand themselves as partners in all communication materials including signs at check-in counters, while their respective websites will cross sell tickets on all routes operated by both airlines. Subject to regulatory approval, Tigerair and Cebu hope to coordinate its sales through joint-fares and scheduling in the future. Management hopes to completed the transaction by end-March 2014.

Impact on earnings
Tigerair is expected to report a loss of SS$14 mn from the sale of its 40% stake in TAP. According to management, this is derived by deducting the purchase price of S$8.9 mn from the estimated S$24 mn to settle TAP’s liabilities, forward sales and other transaction costs. With the sale expected to be completed by end-March, we have cut our FY14 EPS by 47% to reflect the loss from the sale. However, with the exit from Tigerair Philippines, we expect associate losses to fall by S$15 mn - S$20 mn (by 38%-40% from loss of S$40 mn- S$50 mn). As a result, we expect Tigerair to instead report a small profit in FY15, and raised our FY16 EPS by 135%.

Maintain UNDERPERFORM
We see Tigerair's moves to broaden its alliances as positive, and hope that it can come to a similar arrangement in Indonesia, where its sub-scale 35% associate, Tigerair Mandala, continues to report losses. These initiatives have a long gestation period, and will not significantly impact near term profitability, except at the associate level. There is no change to our EBITDAR forecast, thus we are maintaining our target price of S$0.47, which is based on 7x FY15E EV/EBITDAR. This implies a 9% potential downside to the stock, thus we maintain our UNDERPERFORM rating on the stock.




Source/Extract/Excerpts/来源/转贴/摘录: Credit Suisse
Publish date: 08/01/14

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