Excerpts from analyst's report

CIMB analyst: Raymond Yap, CFA

tiger_airways_550"Tiger's lower-cost ASEAN competitors are still expanding fast even as Tiger has pressed the pause button," says CIMB.
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Good results need nuanced read 
TGR clawed back into a small core net profit of S$5.8m in the quarter ended Dec 2014, after reporting 3½ consecutive years of core losses or negligible profits. This was ahead of expectations, with 9MFY15 core net loss of S$83m comprising just 68% of our previous full-year loss estimate, due to better-than-expected yields.

Hence, we reduce our FY15 core loss forecast by 15%, while FY15 core EPS loss is lowered by an even-larger 30% due to the 85-for- 100 rights issue completed on 7 Jan 2015. We are also forecasting higher core profits for FY16-17. Nevertheless, we maintain our Reduce rating, with a higher target price (now based on the sector average CY16 P/E of 11x vs. P/BV of 1x previously), as TGR still faces huge longer-term challenges. 

Highlights of 3QFY15 Although TGR reported a core EBIT of S$7.9m, its wholly-owned subsidiary Tigerair Singapore (TR) reported a small operating loss of S$0.9m last quarter, with the difference coming from other income streams. After spending the past five quarters deep in the red, TR’s recovery was driven by a 6%-pt yoy rise in loads (PLF), and a 4-5% yoy rise in yield which is a dramatic improvement from the deep yield declines of the immediately preceding six quarters.

Why did revenue metrics recover so strongly? Yields and PLF improved due to several factors:
(1) the cancellation of poor performing routes in 2014 – Trivandrum (from 22 Sep), Bandung (from 25 Oct) and Phnom Penh (from 11 Nov) – which also caused ASK capacity to drop 5.7% yoy in 3QFY15,
(2) the recovery of outbound Singapore travel to Thailand,
(3) the Scoot-TR collaboration to avoid direct overlap on parallel routes to Hong Kong and Bangkok, and (4) a more experienced revenue management team.

Kitchen-sinked costs help as well The bottomline also improved because the loss from the sale of 40% of Tigerair Australia was already provided for earlier, while the Philippine and Indonesian cubs have been sold/closed down.

Further, the onerous leases on the fleet of 12 excess planes to be subleased to IndiGo over the next 3-4 years were kitchen-sinked in past quarters, without which, TGR would have likely remained in the red. The longer-term challenge for TGR is how to stay relevant competitively, when its lower-cost ASEAN competitors are still expanding fast even as TG has pressed the pause button.  

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