, Singapore

Tiger Airways attempts a fierce shift of focus to Asia

The 60% stake sale is an evidence.

According to CIMB, having stabilised its operations in Singapore, Tiger is now turning its focus on its associates in Asia.

Here's more from CIMB:

We deem its proposed 60% stake sale in Tiger Australia to Virgin Australia as an effort to direct precious resources into higher growth markets in Asia, a positive in our view.

The 2QFY13 core net loss (-S$19.1m) was worse than expected (-S$12.5m) due to higher losses from associates. We raise our FY13 losses to account for 2QFY13 and cut FY14-15 earnings by 4-5% to account for lower profit contributions from Australia post divestment.

Tiger’s near-term growth profile is unchanged. 2QFY13 core net loss of S$19.1 (+32% qoq) was larger than expected, primarily due to larger-than-expected associate losses from SEAIR (S$3.8m).

However, we expect a sequential decline in associate losses as Tiger should have fully written down its investment in SEAIR come 3QFY13. Operationally, softer fuel prices helped to offset higher route charges and staff costs on a sequential 10.9% increase in capacity.

Passenger yields fell slightly by 1.6% qoq on a seasonally-weaker quarter. Tiger Singapore was profitable for a 2nd consecutive quarter with operating profit of S$4.8m.

Tiger Australia narrowed its operating losses qoq (S$21m to S$20m). Tiger plans to divest 60% of Tiger Australia to Virgin Australia for A$35m.

We deem this as a longerterm positive. We think that Virgin is likely to optimise route portfolio by focusing Tiger Australia on shorter leisure routes and Virgin on longer routes better suited for its full-service product.

We also view this as Tiger’s attempt to focus on Asia’s higher growth markets. Tiger Singapore is already profitable and management is committed to a breakeven in its Philippines and Indonesia associates.

The partnership will not have any major impact on near-term growth. We reckon it will take several quarters before VA and Tiger can roll out synergistic plans.

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