Tiger Airways

Phillip Securities Research on 3 Oct 2012

FOLLOWING the closure of the Budget Terminal, Tiger Airways Singapore recently began operations at Changi Airport's Terminal 2. With a common operating terminal, Tiger Airways Singapore and Scoot signed an agreement for a partnership to offer joint itineraries. Separately, budget airfares in Australia declined by 11.8 per cent year on year in the quarter ending last month.

While the collaboration between Scoot and Tiger is positive, it had been widely anticipated by the market and should not be a share price driver for the stocks of Tiger Airways and Singapore Airlines. We estimate that airport-related charges will increase the airline's operating cost by $11 per person or 8 per cent of the average fares paid by passengers travelling on Tiger Airways Singapore.

While we expect Tiger Airways to pass on these higher costs to its passengers, the price-sensitive nature of the budget market could lead to lower demand in respond to higher fares.

We reversed our profit estimate for FY2013 and expect Tiger Airways to be in the red for another year. Current valuation of the stock is too high, considering the prospects of another year of losses and further erosion of its equity base. We believe that the market is overly focused on the operational turnaround of Tiger Australia and ignoring the excessive valuations on the stock.

We downgrade Tiger to "sell" with a revised target price of $0.45, based on our unchanged target multiple of 1.7 times FY2013 book value per share.
SELL