• Large provisions charged to 2QFY15
• Proposed rights issue has SIA’s support
• Change in valuation; maintain SELL

Disappointing 2QFY15 results once again

Tiger Airways Holdings (Tigerair) reported a 10.5% YoY decline in its 2QFY15 revenue to S$146.7m while its 1HFY15 revenue declined 21.1% to S$315.7m due to exclusion of Tigerair Australia, meeting 96.2% of our forecasted 1HFY15 revenue. It also recorded a 107.7% YoY increase in 2QFY15 core loss to S$26.6m, mainly due to weaker yields albeit higher traffic volume, which led to a 126.0% increase in 1HFY15 core loss to S$44.3m. Tigerair’s 2QFY15 results were further worsened by large provisions amounting to S$159.1m. Out of the S$159.1m, S$99.3m was provided for onerous aircraft lease contracts while the remaining provision was for the loss expected from the planned divestment of Tigerair Australia. Taking into account these provisions, Tigerair’s 2QFY15 net loss amounted to S$182.4m, against its 2QFY14 PATMI of S$23.8m.

Proposed rights issue to strengthen balance sheet

The large provisions charged during the quarter weakened Tigerair’s balance sheet tremendously and reduced its book value by 91.9% from S$278.7m as at 31-Mar to S$22.6m as at 30-Sep. It announced last week the proposal to undertake an 85-for-100 rights issue to raise gross proceeds of up to ~S$234m at S$0.20 per rights share. SIA has undertaken to subscribe for its pro rata entitlement as well as excess rights shares up to total of S$140m. In addition, SIA announced that it will convert all of its perpetual convertible capital securities (PCCS) holdings into shares prior to the rights issue, raising its stake in Tigerair from 40% to ~55%. Simply put, if the rights issue is approved, the minimum gross proceeds that Tigerair should receive is at least S$138m.

Change in FV estimate; maintain SELL

With large provisions and a weak performance in 2QFY15, we increase our forecasted FY15F net loss by 145.3% to S$254.4m. But given the reduction in cash burden from the sublease of the 12 aircraft, we narrow our FY16F estimated net loss by 62.7% to S$6.0m. We also have not factored in the effects of the rights issue as it is only at the proposal stage. With the tremendous drop in book value, we change our valuation methodology to EV/EBITDA instead P/B. We will review our estimate again when the rights issue is approved. Hence, at 8x FY16F EV/EBITDA (regional LCCs average blended FY15F/16F EV/EBITDA: 8.2x), we lower our FV estimate to S$0.21 (prev: S$0.35) while maintaining a SELL rating. We will revisit our estimate once again when the rights issue is approved.

Source: OCBC Research - 20 Oct 2014