Previous uncertainties for Tiger are starting to dissipate: CIMB

Quarterly losses are expected to narrow and profitability to return in FY14.

CIMB said:

We upgrade Tiger from UP to Trading Buy, as negatives should have been priced in. We raise FY12 losses on lower 3Q demand and cut FY13-14 EPS by 22-140% on changes to capacity assumptions. We raise our TP to 20x CY13 P/E from 8x in view of its turnaround.

After the lifting of a 1½-month suspension in mid-Aug, Tiger Australia has been improving its fleet utilisation. The initial limit of 18 flights/day has been increased to 32 daily sectors from 16 Dec. CEO Chin Yau Seng told the media that he expects normal operations in Australia by mid-2012 and is focusing on breaking even.

Tiger is enjoying higher passenger fares (+A$20 from pre-suspension) while load factors are likely to increase after receiving a waiver on crew-to-passenger limits in Sep.

According to Jakarta Post, Mandala is slated for its relaunch by mid-Feb. Mandala will begin operations with three A320s and will raise its fleet size to 10 within a year. Mandala’s aircraft needs should absorb most of Tiger’s planned FY13 deliveries. This should buy some time for Tiger Singapore, which has been suffering from depressed yields and loads as demand has yet to catch up with its 64% fleet increase.

We expect yields and loads to improve in Asia, as Tiger finetunes its route portfolio and demand matures on new routes. The natural growth of the Singapore market should also lend a helping hand.

We previously valued Tiger at 8x P/E, in line with the industry’s historical forward average in the past five years, to account for its operational risks. As such risks are dissipating, Tiger arguably deserves above-average multiples.

We raise our valuation to 20x CY13 EPS, 1 sd above LCCs’ historical forward average. Tiger could benefit from: 1) a speedy recovery in Australian operations; 2) better load factors and yields in Singapore; and 3) success in securing a new base in Indonesia.

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