Tiger Airways

Kim Eng on 6 Spet 2012

Why are we highlighting this stock? We see a recovery trend emerging from Tiger Airways (Tiger), one of the first budget airlines based out of Singapore. Australian operations, although still loss-making, look to be on a slow-but-steady recovery from their Jul-Aug 2011 grounding of Australian flights. Tiger’s addition of SEAir and PT Mandala Airlines also showcases their appetite for expansion despite challenging conditions plaguing the aviation industry.

Australian operations recovering well. Tiger Airways reported 1QFY3/13 results that gave a good account of its recovery potential. Tiger Singapore reported its first operating profit since the Australian groundings, with an operating profit of SGD4m. Tiger Australia narrowed its operating loss to SGD21m, from SGD23m in 1QFY3/12. Encouragingly, quarterly passenger load factors (83.3%) continue to edge towards break-even (90.1%).

JVs show the way. The recent completion of Tiger’s 40% investment in SEAir (Philippine-based) will be their second joint-venture after their 33% stake acquired in Mandala Airlines (Indonesia-based). These JVs, while still in the early stages, look to point the way to jump-start operations outside of Tiger’s current geographical base.

Operating conditions still remain tough. Despite the positive expansionary signs shown by Tiger, operating conditions remain tough sector-wide for the aviation industry. Jet Fuel once again shows a disconcerting reversion to unsustainable high levels, while competition from regional budget carriers continue to impose yield pressures and erode profitability.

This tiger might be worth a second look. While macro signs remain ominous for the aviation industry, budget airlines such as Tiger continue to ride the wave of budget travel especially in Asia. We believe the company might be showing signs of an imminent turnaround, with the stock trading at a valuation trough of ~2.5x P/BV.