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HOLD (Maintained)
COMPANY RESULTS
Tigerair (TGR SP) 1QFY16: Pricing Momentum Slows And That Presents The Greatest Risk 1QFY16 annualised earnings were substantially below consensus estimates, but this was due to relatively higher fuel hedges for the quarter. Over the next few quarters, both quantum and level of fuel hedges will decline, which will boost earnings. The ability to maintain pricing power is a key uncertainty and is contingent on competitors’ capacity addition. Maintain HOLD. Target price: S$0.315. Suggested entry level at S$0.28. 1QFY16 RESULTS Year to 31 Mar (S$m) Pax Seat Revenue Ancillary Revenue Total Revenue Operating Profit Non Operating Income Profit Before Tax Net Profit
Share Price Target Price Upside
S$0.315 S$0.315 1.6%
COMPANY DESCRIPTION Tigerair is the largest low cost carrier (LCC) operating out of Changi Airport.
STOCK DATA 1QFY16 128.6 39.7 168.3 0.55 (2.2) (1.6) (1.7)
yoy % chg (2.8) 8.2 (0.4) n.a. n.a. 97.6 97.4
GICS sector Bloomberg ticker: Shares issued (m): Market cap (S$ m): Market cap (US$m): 3-mth avg daily t'over (US$m):
Remarks 6.8% increase in ASP vs 8.5% decline in traffic 3.9% rise in ASP S$16.4m loss in 1QFY15
Reversal from a loss of S$65.2m in 1QFY15
Industrials TGR SP 2,497.5 824.2 602.7 1.1
Price Performance (%) 52-week high/low
Source: Tigerair, UOB Kay Hian
• Below expectations on an annualised basis but there is scope for improvement. The increase in ASP did not offset the decline in pax traffic (RPK), which resulted in lower top-line and earnings. Consensus expects full-year net profit of S$44.0m for FY16 and implicit within this forecast is: a) improved pricing for the rest of the quarters, or b) lower fuel cost. We reckon the latter is likely. The momentum of ASP increase has slowed from an average of 17% for the past two quarters to 6.8% for the current quarter. • Expecting lower jet fuel cost for the next three quarters. 1QFY16 average into-plane fuel price is estimated at US$74/bbl, which is a premium to the current 1-month forward of US$67/bbl. In addition, there was an S$11.3m fuel hedging loss, which implies net fuel cost of about US$90/bbl for the quarter. This is likely to decline in the coming quarters as both the quantum and absolute amount of hedges narrow.
1mth 10.0
S$ 0.365/S$ 0.221
3mth
6mth
1yr
YTD
(4.3)
24.5
(10.5)
24.5
Major Shareholders
%
Singapore Airlines
40.0
FY16 NAV/Share (S$)
0.10
FY16 Net Cash/Share (S$)
0.06
PRICE CHART TIGER AIRWAYS HOLDINGS LTD
(lcy)
(%) TIGER AIRWAYS HOLDINGS LTD/FSSTI INDEX
0.40
110 100
0.35 90 0.30
80 70
0.25 60 0.20
50
150 100 50
KEY FINANCIALS Year to 31 Mar (S$m) Net turnover EBITDA Operating profit Net profit (rep./act.) Net profit (adj.) EPS (S$ cents) PE (x) P/B (x) EV/EBITDA (x) Dividend yield (%) Net margin (%) Net debt/(cash) to equity (%) Interest cover (x) ROE (%) Consensus net profit UOBKH/Consensus (x)
Volume (m)
0
2014
2015
2016F
2017F
2018F
746 (18) (52) (223) (227) (25.1) n.m. 5.4 n.m. 0.0 (29.9) 67.6 (3.9) (93.4) -
677 (3) (40) (264) (93) (5.8) n.m. 3.5 n.m. 0.0 (39.0) (1.5) (0.6) (106.8) -
652 98 61 51 47 1.9 17.7 3.3 8.4 0.0 7.8 (53.5) 13.2 21.2 32 1.45
678 116 79 63 63 2.5 13.1 2.5 7.1 n.a. 9.3 (67.7) 22.1 20.6 49 1.29
727 127 90 73 73 2.9 11.2 2.0 6.5 n.a. 10.1 (84.7) 35.0 19.1 53 1.38
Jul 14
Sep 14
Nov 14
Jan 15
Mar 15
May 15
Jul 15
Source: Bloomberg
ANALYST K Ajith +65 6590 6627
[email protected]
Source: Tigerair, Bloomberg, UOB Kay Hian
Refer to last page for important disclosures.
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• Pricing could have been stronger were it not for Jetstar’s aggressive capacity expansion and weaker regional currencies. While Tigerair, which has the highest LCC share at Changi, has been cutting capacity, its second-largest LCC competitor Jetstar Asia has been aggressively raising capacity since the start of the year. This could have curtailed some of the ASP growth. Next, weak Indian and Indonesian currencies could also have impacted yield on return flights. In fact, Tigerair’s largest capacity in km terms is towards India.
TIGERAIR SINGAPORE ASSUMPTIONS
TIGERAIR’S AND JETSTAR ASIA’S COMPARATIVE FORWARD SEAT CAPACITY GROWTH OUT OF CHANGI FOR 2015
Source: Tigerair, UOB Kay Hian
50.0%
Year to 31 Mar RPK Growth (%) ASK Growth (%) Average Net Fares (S$) yoy % chg Avg Gross Pax Fares (S$) yoy % chg Jet Fuel (US$/bbl) Load Factor (%)
FY15 4.0 (1.1) 131 3.8 102.2 3.9 89 82.1
FY16F (6.0) (6.4) 134 2.0 105.8 3.5 82 82.4
FY17F 1.0 0.0 138 3.0 109.8 3.8 85 83.3
1QFY16 OPERATING STATISTICS
40.0%
1QFY16 1284.0 2,388 2,859 83.5 6.7 5.7 85.4
Pax carried ('000) Pax Traffic (RPKm) Pax Capacity (ASKm) PLF (%) Pax Yield )(c/RPK) Pax Unit Cost (c/ASK) Breakeven load factor (%)
30.0% 20.0% 10.0% 0.0% Jan
Feb
Mar
Apr
May
June
July
Aug
Sep
Oc t
Nov
Dec
yoy % chg -9.0 -8.4 -7.2 -1.4ppt 4.7 -5.0 -8.7ppt
Source: Tigerair, UOB Kay Hian
- 10.0%
4Q Pax Yield +14.5%
1Q Pax Yield +4.7% yoy
Tigerair YOY Seat Capacity Growth
Jetstar Asia YOY Seat Capacity Growth
Source: CAPA, UOB Kay Hian
STOCK IMPACT • Expects recovery momentum to continue; but most of the ROE accretion largely dependent on ability to raise ticket prices. We estimate Tigerair will record 21% ROE in FY16 on the back of higher ticket prices and lower fuel cost. We have assumed average net fuel cost of US$82/bbl and a 3.5% rise in ticket prices (1QFY16: +6.8% yoy). A 1ppt increase in ticket prices from our base assumption will raise net profit by a whopping 51%. Given weaker Indonesian and Malaysian economies, we are less confident of continued pricing power and have thus assumed growth in ticket prices will slow in the coming quarters.
FY16 NET PROFIT SENSITIVITY BASED ON 82% LOAD FACTOR Average Net Fuel Price (US$/bbl) Avg Ticket Price (% chg)
- 20.0%
51.0
82.2
80.2
78.2
76.2
3.5 4.5
51.0 76.8
55.3 81.1
63.9 89.7
76.8 102.6
5.5
102.6
106.9
115.5
128.4
6.5
128.4
132.7
141.2
154.1
Source: UOB Kay Hian
EARNINGS REVISION/RISK • We raise our FY16 net profit forecast from S$25.0m to S$51.0m, mainly due to an 8% reduction in our fuel cost assumption for FY16. Our FY17 estimate is also raised by 13% on the back of lower fuel cost assumption. A recovery in fuel prices and the weakening macro environment remain the biggest risks. VALUATION/RECOMMENDATION • Maintain HOLD. We had previously valued Tigerair at 14x FY17 earnings but we lower this to 13x FY17’s. Much of the positives are already in the price and we believe the region’s huge LCC orderbook will not be conducive for continued pricing power. Tigerair is currently trading well above 2x FY17F book value. Maintain HOLD and preferred entry price of S$0.28. The stock is highly levered to fuel prices and improved ASP.
Refer to last page for important disclosures.
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PROFIT & LOSS
Thursday, 23 July 2015
BALANCE SHEET
Year to 31 Mar (S$m)
2015
2016F
2017F
2018F
Year to 31 Mar (S$m)
2015
2016F
2017F
2018F
Net turnover
487.5
471.6
462.2
430.6
91.6
91.6
91.6
91.6
310.2
400.3
450.1
541.3
677.4
652.1
677.9
727.0
Fixed assets
EBITDA
(3.0)
98.2
116.4
127.1
Other LT assets
Deprec. & amort.
36.9
37.0
37.0
37.0
Cash/ST investment
EBIT
(39.9)
61.1
79.4
90.1
Other current assets
Total other non-operating income
(10.8)
0.0
0.0
0.0
Total assets
Associate contributions
(35.3)
0.0
0.0
0.0
ST debt
83.7
81.2
79.2
77.4
(5.3)
(7.4)
(5.3)
(3.6)
Other current liabilities
256.4
247.5
249.8
265.8
LT debt
223.3
176.6
137.4
104.5
17.9
17.9
17.9
17.9
215.4
266.4
344.6
424.3
1,022.4
1,015.4
1,054.6
1,115.7
2015
2016F
2017F
2018F
Net interest income/(expense) Pre-tax profit
(272.2)
53.7
74.1
86.4
Tax
8.3
(2.7)
(11.1)
(13.0)
Minorities
0.0
0.0
0.0
0.0
Net profit
(263.9)
51.0
63.0
73.5
(92.8)
46.6
63.0
73.5
2015
2016F
2017F
2018F
Year to 31 Mar (%) Profitability
Net profit (adj.)
CASH FLOW Year to 31 Mar (S$m) Operating
Other LT liabilities Shareholders' equity Total liabilities & equity
133.1
51.8
50.7
52.1
1,022.4
1,015.4
1,054.6
1,115.7
KEY METRICS 28.7
103.8
121.1
142.9
(272.2)
53.7
74.1
86.4
EBITDA margin
(0.4)
15.1
17.2
17.5
Deprec. & amort.
34.8
34.6
34.7
34.6
Pre-tax margin
(40.2)
8.2
10.9
11.9
Associates
91.4
0.0
0.0
0.0
Net margin
(39.0)
7.8
9.3
10.1
Working capital changes
14.3
5.8
4.1
14.8
ROA
(26.7)
5.0
6.1
6.8
153.5
0.0
0.0
0.0
ROE
(106.8)
21.2
20.6
19.1
7.2
Pre-tax profit
Non-cash items Other operating cashflows
7.0
9.8
8.3
7.0
Investing
(53.0)
46.0
(25.0)
(19.0)
Growth
Capex (growth)
(40.7)
(25.0)
(25.0)
(20.0)
Turnover
(9.2)
(3.7)
4.0
Investments
(60.3)
0.0
0.0
1.0
EBITDA
n.a.
n.a.
18.6
9.2
55.7
71.0
0.0
0.0
Pre-tax profit
n.a.
n.a.
38.1
16.6
Net profit
n.a.
n.a.
23.5
16.6
Net profit (adj.)
n.a.
n.a.
35.2
16.6
EPS
n.a.
n.a.
35.2
16.6
30.0
Proceeds from sale of assets Others
(7.7)
0.0
0.0
0.0
Financing
162.9
(59.7)
(46.4)
(33.7)
Issue of shares
227.4
0.0
0.0
1.0
0.0
0.0
0.0
0.0
Loan repayment
(53.0)
(49.1)
(41.3)
(34.7)
Others/interest paid
(11.5)
(10.5)
(5.2)
0.0
Net cash inflow (outflow)
138.6
90.1
49.7
90.2
Beginning cash & cash equivalent Changes due to forex impact
171.6 0.0
310.2 0.0
400.3 0.0
450.1 1.0
Ending cash & cash equivalent
310.2
400.3
450.1
541.3
Proceeds from borrowings
Refer to last page for important disclosures.
Leverage Debt to total capital Debt to equity Net debt/(cash) to equity Interest cover (x)
58.8
49.2
38.6
142.5
96.8
62.9
42.9
(1.5) (0.6)
(53.5) 13.2
(67.7) 22.1
(84.7) 35.0
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