Tiger Airways
(TGR SP) is a low cost airline
based in Singapore and Australia that aims to grow through strategic joint
ventures across the Asia Pacific. Tiger Airways is making all efforts to
increase its fleet size to 68 by the end of 2015.
COLLABORATION ADVANTAGES AND DISADVANTAGES
Tiger Airways has moved to Cheng’s Airport Terminal 2 following the closure of
the Budget Terminal in Singapore. There are many positive benefits such as
improved connectivity with links to the rail network and opportunities for
collaboration with other airlines. Due to the common operating terminal, Tiger
Airways and Scoot signed a partnership agreement to offer joint
itineraries in Singapore. This collaboration is expected to extend in Australia
in the long run. This move was widely anticipated and will not affect the
prices of TGR SP.
Moreover, the budget
airfares in Australia have fallen by 11.8% year on year for the quarter ending
September 2012. The sharp decline is exaggerated due to the high base effects
due to the grounding of Tiger Australia in the same period. In addition to
this, the rise in airport related charges will increase the operating expenses.
These increased expenses could be passed onto the customers and could lead to
lower demand due to price sensitive nature of the market. It is expected that if
Tiger Australia would want to attract customers, it would keep airfares low.
CARBON TAX IMPLICATIONS
The carbon
tax regime has been implemented in Australia since July 2012. TGR
SP would experience higher operating costs around A$3-A$10, in the range of
Virgin Australia (A$1.5-A$6) , Jet star (A$10) and Qantas (A$3-A$6). These
costs are expected to be passed on to the consumers, leading to a rise in
airfares of almost all airlines. This would lead to a reduction in fares and
narrow margins, especially for TGR SP.
VALUATION
It is expected
that there would be a loss in the FY13E. The current valuation
(Valuation Multiple: 1.7XFY13E BVPS) of the stock is too high due to another
year of expected losses and a further erosion of the equity base. The market
focus is on the operational turnaround ignoring the excessive valuation of
stock. The stock is being downgraded with a recommendation to sell at a revised
target price of S$0.45.
FINANCIAL ANALYSIS AND
RECOMMENDATION
The revenue and EBITDA (Earnings before
Interest, Taxes, and Depreciation) of Tiger Airways have increased
in FY13E as compared to previous year and is projected to increase in FY14E as
well as in FY15E. However, the EBIT is
negative for FY13E. Net income is also negative (-5) and is expected to
continue to be negative till FY15E (-8). Cash flow from investments is also in
the red and is expected to remain so. Dividends have not been declared to the
shareholders and with decreasing profits, it is not expected that dividends
would be declared. Loans are expected to rise in FY14E (242) and FY15E (242)
from FY13E (125). While assets are expected to increase, liabilities are
expected to rise at a faster rate. It is recommended to sell.
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