• Rights issue fully subscribed
• Turnaround still some way to go
• Lower FV; maintain SELL

Balance sheet strengthened with rights issue

Following numerous consecutive quarters of losses and large provisions charged to 2QFY15 results, Tiger Airways Holdings’ (Tigerair) book value declined to low doubledigit level. This led to a rights issue by Tigerair to repair its balance sheet in a bid to carry out its turnaround strategy. The rights issue, which closed on 29-Dec-14, was fully subscribed with total valid acceptances and excess applications received representing 156.7% of the 1,147,102,770 rights shares available for issuance. SIA’s stake remains at 55.8% based on the enlarged issued share capital of Tigerair of 2,496,635,441 shares post the rights issue, as FY15F’s book value strengthens from S$15.9m to S$242.4m.

Lower oil prices to help but turnaround in the near-term unlikely

After shedding all its overseas ventures, Tigerair’s turnaround strategy focuses on growth through a partnership with Scoot to capture interlining traffic between Tigerair and Scoot’s routes. While we previously forecasted the cooperation to begin as early as from 1QFY16, we think a more realistic target is from 2HFY16 onwards instead. In order to maximise the synergies between Tigerair and Scoot’s routes, the connecting flight timings must be attractive and changing them requires approval from the relevant authorities which is time-consuming. In the near-term, declining oil prices will help in improving profitability. We performed regression analysis based on the past 22 quarters’ data to determine the correlation between Tigerair’s jet fuel cost and contract price for Singapore Jet Kerosene Swap Futures, which is used to estimate Tigerair’s FY16 jet fuel cost as we revised our assumption of jet fuel price from US$115/barrel to US$100/barrel. However, we think the depressed yields from overcapacity in the region will still mute its earnings, at least in 2015, negating the effects of lower oil prices.

Lower FV estimate; maintain SELL

After factoring in both positive and negative factors, our FY16F net loss narrows from S$6m to S$1.4m. With the larger share base from its rights issue, our fair value consequently decreases slightly from S$0.21 to S$0.18. With a still-muted outlook on the aviation sector in 2015, maintain SELL.

Source: OCBC Research - 8 Jan 2015