• 4QFY14 results disappoint
• Manage capacity ahead
• Lower FV from S$.38 to S$0.30

Results continue to see red

Tiger Airways Holdings’ (TR) 4QFY14 revenue came in 4.3% above expectations at S$161.9m while operating loss of S$24.2m is 62.5% worse than expectations. On a YoY basis, 4QFY14 revenue declined 35.1% due to the exclusion of Tigerair Australia, which ceased to be a subsidiary from 8 Jul-13. Despite deconsolidation of loss-making Australia unit’s results, S$12.7m operating profit in 4QFY13 turned into S$24.2 loss in 4QFY14 as weakness emerges in its main Singapore operations. 4QFY14 PATMI loss increased by 5.2x from S$15.4m to S$95.5m due to: 1) S$25.0m provision for onerous aircraft leases (grounding of eight aircrafts), and 2) S$47.4m losses in associates. On a full year basis, Tigerair Singapore reported operating loss of S$58.6m in FY14, a 180-degree turn from its S$57.1m operating profit in FY13. This is due to the familiar story of weaker yield (-9.9% to 6.74Scent/rpk) and lower load factor (-6.2ppt to 78.1%), in turn caused by overcapacity and insensible competition. Together with exceptional items (i.e. impairments and provisions) and losses from associates, TR’s net loss widened from S$45.4m in FY13 to S$223.0m in FY14.

Switching from growth-mode to profitability-mode

Management will be focusing on managing capacity and optimising yield ahead. First, eight aircrafts will be grounded in FY15 (five in Indonesia and three in Philippines). We welcome this move as it will help to reduce operating costs. However, if the grounded aircrafts are unable to be re-deployed or subleased to other airlines for a prolonged period, we think further provisions will have to be made. Second, TR has divested its stakes in loss-making Tigerair Australia and Tigerair Philipines in FY14, and is reassessing its stake in Tigerair Mandala. Third, capacity expansion is checked as orders for nine A320s in 2014-2015 were cancelled, replaced by deliveries further away in 2018-2025.

No turnaround in sight

We like TR’s focus on managing overcapacity and asset-light strategy of network extension through alliances (vs. owning direct stakes previously). However, the stillintense competition in the LCC industry is likely to check TR’s performances ahead. As we incorporate the latest results, we maintain SELL and lower our FV estimate from S$0.38 to S$0.30.

Source: OCBC Research - 5 May 2014