Tiger Airway

CIMB Research on 14 Sept 2012

WHILE Tiger's turnaround is underway, potential roadblocks in Australia trigger a downgrade from "outperform" to "neutral". We now forecast bigger FY2013 losses and cut FY2014-15 EPS (earnings per share) by 6 per cent for lower yields and Southeast Asian Airlines losses.

Capacity on Tiger Australia's top routes will increase by 16 per cent in the Oct-Dec quarter. We estimate that this will lower load factors by 2-3 percentage points. Competition between Qantas and Virgin Blue could put a cap on yield. This, plus higher fuel prices, suggests that Tiger Australia's breakeven could be delayed.

We lower our valuation to the low cost carrier industry's five-year forward average of 13.5x from our previous peg of 20x as Tiger's growth potential should gravitate towards the industry average from 2014 onwards. Tiger's current 11.5x 2014 PE should have factored in the near-term growth and uncertainties. Downgrade to Neutral.
NEUTRAL