Towards Financial Freedom
Singapore Airlines - Buys 10% of Virgin Australia
THE BUZZ
SIA announced that it has purchased a 10% strategic stake in Virgin Australia for AUD105m. Virgin Australia will use the proceeds to buy 60% of Tiger Australia from Tiger Airways Holdings for AUD105m and also regional carrier Skywest Airlines in a cash and stock offer valued at about AUD95m. Under the subscription agreement, SIA will have anti-dilution rights to maintain 10% interest in Virgin Australia, in the event of an equity issuance from another transaction announced by Virgin Australia on 30 Oct 2012. Australian Foreign Investment Review Board (FIRB) approval has been obtained for the share purchase, which is expected to be completed on 16 Nov 2012.
OUR TAKE
Cementing existing relationships. Currently, the major shareholders of Virgin Australia are the Virgin Group, with 26.13% equity interest, Air New Zealand (18.99%) and Etihad Airways (10%). With SIA having established a code sharing tie-up with Virgin
Australia in February this year, the 10% stake placement will serve to cement its on-going relationship with the latter for any future operational partnerships to compete head-on with Qantas in the highly-competitive domestic market in Australia. We see more potential network tie-ups and connectivity moving forward, not with just Virgin Australia but also the Virgin Group, noting that SIA also has a 49% stake in Virgin Atlantic Airways. Furthermore, such tie-ups will also involve two-tier customer segmentation (between low cost and full services) as Virgin Australia is also buying a 60% stake in Tiger Australia and also Skywest Airlines in a deal announced on the same day.
Maintain Trading BUY. All eyes on upcoming 2Q earnings. We maintain our TRADING BUY call on SIA. Our FV of SGD11.67, premised on 1x CY FY13 P/BV, remains unchanged. Given the higher load factor and improved aircraft utilization, the airline is likely to see an earnings upside surprise in 2Q despite an expected drop in yields y-o-y. SIA is scheduled to release its 2Q earnings tomorrow.
Source: OSK
SIA announced that it has purchased a 10% strategic stake in Virgin Australia for AUD105m. Virgin Australia will use the proceeds to buy 60% of Tiger Australia from Tiger Airways Holdings for AUD105m and also regional carrier Skywest Airlines in a cash and stock offer valued at about AUD95m. Under the subscription agreement, SIA will have anti-dilution rights to maintain 10% interest in Virgin Australia, in the event of an equity issuance from another transaction announced by Virgin Australia on 30 Oct 2012. Australian Foreign Investment Review Board (FIRB) approval has been obtained for the share purchase, which is expected to be completed on 16 Nov 2012.
OUR TAKE
Cementing existing relationships. Currently, the major shareholders of Virgin Australia are the Virgin Group, with 26.13% equity interest, Air New Zealand (18.99%) and Etihad Airways (10%). With SIA having established a code sharing tie-up with Virgin
Australia in February this year, the 10% stake placement will serve to cement its on-going relationship with the latter for any future operational partnerships to compete head-on with Qantas in the highly-competitive domestic market in Australia. We see more potential network tie-ups and connectivity moving forward, not with just Virgin Australia but also the Virgin Group, noting that SIA also has a 49% stake in Virgin Atlantic Airways. Furthermore, such tie-ups will also involve two-tier customer segmentation (between low cost and full services) as Virgin Australia is also buying a 60% stake in Tiger Australia and also Skywest Airlines in a deal announced on the same day.
Maintain Trading BUY. All eyes on upcoming 2Q earnings. We maintain our TRADING BUY call on SIA. Our FV of SGD11.67, premised on 1x CY FY13 P/BV, remains unchanged. Given the higher load factor and improved aircraft utilization, the airline is likely to see an earnings upside surprise in 2Q despite an expected drop in yields y-o-y. SIA is scheduled to release its 2Q earnings tomorrow.
Source: OSK
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