• FY15 core loss within our expectation
• Better fuel hedging price helps
• Maintain SELL

4QFY15 continues to see one-off charges

Tiger Airways (Tigerair) 4QFY15 results saw its net loss narrow by 80.3% YoY to S$18.8m on the back of a 5.0% growth in revenue to S$172.2m driven by better yields and load factor. As part of management’s restructuring efforts to turnaround Tigerair, 4QFY15 continues to see one-off charges such as: 1) S$10.8m on maintenance charges from prior years on accounting policies changes, and 2) estimated loss of S$17.5m on planned disposal of two aircraft. We also estimate for increases in depreciation and maintenance expenses of ~S$13.5m and S$2.0m per annum to recur going forward. For FY15, Tigerair’s net loss grew 18.5% to S$264.2m resulting from the many one-off charges recorded throughout the year. However, excluding exceptional items, core net loss of S$72.5m were within our expectation of S$71.8m.

Hedging positions improve as expensive contracts expire

The airline industry is expected to remain challenging on overcapacity in the region, with capacity expected to grow ~13% in 2015, according to Centre for Aviation. Even though Tigerair registered strong recovery in yield and load factor in 4QFY15 (refer to page 3), overcapacity issue translates to uncertainty of yield going forward. However, we think lower jet fuel costs will benefit Tigerair with higher savings as its hedging positions improve on expiry of the older and more expensive contracts. Accordingly, we update our assumptions with its new hedging positions as at 31-Mar-15. With an average hedging exposure of 40%, we forecast Tigerair to be 65%, 55%, 40%, 25% and 15% hedged for each quarter from 1QFY16 to 1QFY17, at the disclosed average hedged price of US$94.42/barrel.

Maintain SELL

While the effort to collaborate with SIA group is making progress, we think Tigerair’s turnaround still has some way to go with slow recovery expected over the next two years. We reiterate our SELL rating but increase our FV marginally from S$0.29 to S$0.30 (8.0x FY16F EV/EBITDA) on cheaper jet fuel assumptions

Source: OCBC Research - 6 May 2015