Tiger Airways

DBS Group Research on 25 Sept 2012

TIGER Australia's operations are improving. With the addition of an 11th aircraft to its fleet, it will be flying 64 sectors a day from next month, compared to 60 pre-suspension. Load factors have also been encouraging in recent months.

However, earnings recovery may be dampened and delayed by the ongoing fare war in Australia between Qantas and Virgin, though this will affect business and premium class more than budget and economy fares. However, taking this into consideration, we now expect a larger net loss of $7 million in FY13, and a lowered FY14F net profit by 7 per cent to $61 million.

Its appointment of a new CEO is a positive. Although Koay Peng Yen's substantial management experience lies outside the airline industry, his permanent appointment and strategic skills should further stabilise the Group's operations, and provide a fresh perspective. In recent meetings with the media and sell-side analysts, Mr Koay said that Tiger Airways should be flexible in exploring new growth avenues, including introducing new products and services and offering enhanced connectivity to improve customer experience. Given Tiger's recent history, fresh ideas could give a fillip to the Group's expansion prospects.

Turnaround story intact, maintain "buy" call.

Despite some near term challenges, Tiger's recovery story is intact.

On this note, we expect the stock to re-rate towards our $0.90 target price, pegged to 12x FY14 PE, as fundamentals continue to improve and management delivers better earnings reports.

BUY