Singapore Company Focus

Tiger Airways Holdings Refer to important disclosures at the end of this report

Bloomberg: TGR SP | Reuters: TAHL.SI

DBS Group Research . Equity

5 May 2015

BUY S$0.345 STI : 3,482.70

Due to turn around in FY16

Price Target : 12-Month S$ 0.42 (Prev S$ 0.39) Reason for Report : FY15 results Potential Catalyst: Earnings recovery and execution Where we differ: We are one of only two BUYs on the street Analyst Paul YONG CFA +65 6682 3712 [email protected] Suvro SARKAR +65 6682 3720 [email protected]

Price Relative S$

Relative Index 217

1.2 167

1.0 0.8

117

0.6 67 0.4 0.2 May-11

May-12

May-13

Tiger Airways Holdings (LHS)

Forecasts and Valuation FY Mar (S$ m) Revenue EBITDA Pre-tax Profit Net Profit Net Pft (Pre Ex.) EPS (S cts) EPS Pre Ex. (S cts) EPS Gth (%) EPS Gth Pre Ex (%) Diluted EPS (S cts) Net DPS (S cts) BV Per Share (S cts) PE (X) PE Pre Ex. (X) P/Cash Flow (X) EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) ROAE (%) Earnings Rev (%): Consensus EPS (S cts): Other Broker Recs:

2014A 746 (111) (232) (223) (141) (22.6) (14.3) (309) (165) (17.6) 0.0 28.3 nm nm nm nm 0.0 1.2 0.6 (93.4)

May-14

17 May-15

Relative STI INDEX (RHS)

2015A 677 (38) (273) (264) (72) (10.6) (2.9) 53 80 (10.5) 0.0 8.6 nm nm nm nm 0.0 4.0 CASH (107.0)

2016F 744 91 41 39 39 1.6 1.6 nm nm 1.5 0.0 10.2 22.2 22.2 5.0 7.5 0.0 3.4 CASH 16.5

2017F 802 113 65 55 55 2.2 2.2 41 41 2.2 0.0 12.4 15.7 15.7 7.4 5.0 0.0 2.8 CASH 19.5

B: 2

(12) 1.2 S: 6

(11) 3.0 H: 1

ICB Industry : Consumer Services ICB Sector: Travel & Leisure Principal Business: Low cost airline in Singapore

Source of all data: Company, DBS Bank, Bloomberg Finance L.P

www.dbsvickers.com ed: TH / sa: YM



Core 4Q15 results slightly below expectations



Yield recovery encouraging while jet fuel costs remain low and below our US$90 assumption



We expect Tigerair to post its first full-year profit in five years come FY16



Maintain BUY with higher TP of S$0.42

Losses narrow in 4Q15. Tigerair reported 4Q15 EBIT that were below expectations, due to accounting changes that affected depreciation as well as MRO costs. Revenue rose 5% y-o-y to S$172.2m while operating losses narrowed by over 90% to S$2.3m from S$24.2m previously. Excluding the higher depreciation and MRO charges, there would have been an operating profit of S$4m. One of the key drivers for the improved performance was a 20% y-o-y decline in net fuel expenses to S$65.1m. Below the operating line, there were further net provisions and write-offs amounting to S$17.4m, which brought the net loss to S$18.8m for the quarter. For the full year, Tigerair reported a net loss of S$264.2m vs. a loss of S$223m a year ago. Earnings to recover next year. The change in accounting estimates for depreciation (reduced useful life from 23 years to 15 years and residual value from 15% to 10% for aircraft) and maintenance expenses should lower (non-cash) earnings by over S$20m per annum. On a positive note, fuel prices remain below our assumption of US$90 per barrel (averaging US$73 per barrel in April) and yields were higher than we expected, growing 12% in 4Q15 vs. our 3% growth assumption. We adjust our forecasts to take into account higher depreciation and maintenance costs, offset by higher yields, which result in our FY16/17 estimates being cut by 12%/11% respectively. Maintain BUY. With a revitalised balanced sheet, and a recovery in earnings and cash flow, our TP is lifted to S$0.42 (due to higher cash earnings estimates), based on 8x FY15/16 EV/EBITDA. We continue to like the stock as a recovery play. At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders Singapore Airlines (%) Free Float (%) Avg. Daily Vol.(‘000)

2,497 861 / 647 55.8 44.2 9,923

Company Focus Tiger Airways Holdings

INVESTMENT THESIS Profile Tigerair is a low cost carrier headquartered in Singapore, where it has the second highest market share after Singapore Airlines, its majority shareholder.

Rationale Surprising losses for core Singapore operations  We expect Tigerair’s total fleet to stand pat at 23 aircraft through to 4Q16, and add one more aircraft only in FY17, and this capacity tightness should help yields and load factors firm up. Also, with jet fuel currently at c.US$75 per barrel, and with increasingly less hedging losses, Tigerair’s jet fuel bill should be substantially lower. No turnaround in sight for associates  We project Tigerair to post an operating profit of S$44m in FY16 compared to a loss of S$40m in FY15, growing by 49% y-o-y to S$66m in FY17. At the bottom line, we project Tigerair to post its first net profit in five years, with a net profit of S$39m in FY16, and growing to S$55m in FY17, compared to a loss of S$264m for FY15.

Intense competition from other leading LCCs in ASEAN  The recently completed rights issue raised net proceeds of S$227.4m for Tigerair, which has helped to re-capitalise the Group’s equity position and leaves it in a net cash position. Tigerair is also now a 55.8%-owned subsidiary of SIA, and a closer working relationship with SIA, such as the interline cooperation with Scoot and inclusion in the KrisFlyer programme, should lead to greater benefits in the long run.

Valuation 12-month TP of S$0.42 based on 8x FY16/17 EV/EBITDA for Tigerair. Our target valuation multiple of 8x EV/EBITDA is referenced to its peers’ average of 7.9x FY16 EV/EBITDA.

Risks Vulnerable to demand shocks  Airlines are susceptible to demand shocks, which could include pandemics, terrorist attacks as well as economic crises. In Tigerair's situation, they are largely exposed to the economic and demand environment for the S.E. Asia, China and Austral.   Higher fuel prices would hit earnings  The Group's razor thin profit margins would be negatively impacted if fuel prices were to climb higher significantly. Each US$1 increase in jet fuel price per barrel would decrease the Group's net profit by c. S$2m, all else being equal.  

Source: DBS Bank

Page 2

Company Focus Tiger Airways Holdings

Forecasts and Key Assumptions FYE Mar (S$ m)

4Q15

1Q16F

2Q16F

3Q16F

4Q16F

1Q17F

2Q17F

3Q17F

4Q17F

Passenger seat revenue

131.0

176.2

167.5

191.0

193.5

191.2

181.8

205.4

208.0

Ancillary revenue

38.4

Lease rental income

2.8

3.9

3.9

3.9

3.9

3.9

3.9

3.9

3.9

172.2

180.1

171.4

194.9

197.4

195.1

185.7

209.3

211.9

Staff costs

19.5

19.5

19.5

20.3

20.3

20.5

20.5

21.4

21.4

Depreciation

12.4

11.7

11.7

11.7

11.7

11.7

11.7

11.7

11.7

All-in cost of fuel

65.1

61.1

59.3

67.2

67.3

66.0

64.1

72.1

71.6

MRO

21.8

21.7

21.7

22.6

22.6

22.9

22.9

23.8

23.8

Marketing & distribution

6.7

6.6

6.6

6.9

6.9

7.0

7.0

7.3

7.3

Aircraft rental

19.3

19.3

19.3

19.3

19.3

19.3

19.3

19.3

19.3

Total revenue Expenditure

Route charges

5.2

5.2

5.2

5.4

5.4

5.4

5.4

5.6

5.6

Airport and handling

20.4

20.4

20.4

21.2

21.2

21.5

21.5

22.3

22.3 5.7

Others

5.2

5.2

5.2

5.4

5.4

5.5

5.5

5.7

Forex loss (gain)

(1.0)

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Operating Profit (Loss)

(2.3)

9.5

2.5

15.0

17.4

15.3

7.8

20.1

23.2

RPK (m p-km)

2,277

2,473

2,415

2,482

2,482

2,606

2,545

2,615

2,615

ASK (m p-km)

2,883

2,875

2,875

2,990

2,990

3,030

3,030

3,151

3,151

Load Factor

79.0%

86.0%

84.0%

83.0%

83.0%

86.0%

84.0%

83.0%

83.0%

Revenue Per RPK (S cts)

7.32

6.86

6.67

7.44

7.53

7.07

6.87

7.58

7.69

Avg No. of Aircraft

23.0

23.0

23.0

23.0

23.0

24.0

24.0

24.0

24.0

RPK Chg y-o-y

-6.1%

-5.2%

2.2%

1.4%

9.0%

5.4%

5.4%

5.4%

5.4%

ASK Chg y-o-y

-10.7%

-6.7%

0.3%

0.2%

3.7%

5.4%

5.4%

5.4%

5.4%

Load Factor Change

3.9%

1.3%

1.5%

1.0%

3.0%

0.0%

0.0%

0.0%

0.0%

Yield (ppt)

11.9%

10.0%

12.0%

3.0%

3.0%

3.0%

3.0%

2.0%

2.0%

CASK (excluding fuel)

3.81

3.81

3.77

3.77

3.76

3.76

3.72

3.72

3.83

Fuel cost per ASK

2.12

2.06

2.25

2.25

2.18

2.12

2.29

2.27

2.26

Total cost per ASK

5.94

5.87

6.02

6.02

5.93

5.87

6.00

5.99

6.09

Jet fuel price (US$/bbl)

92.7

90.0

90.0

90.0

90.0

90.0

90.0

90.0

90.0

OPERATING STATISTICS

Key Drivers Change

Source: Company, DBS Bank estimates

Page 3

Company Focus Tiger Airways Holdings

Income Statement (S$ m) FY Mar Revenue Cost of Goods Sold Gross Profit Other Opng (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Preference Dividend Net Profit Net Profit before Except. EBITDA Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (%) Margins & Ratio Gross Margins (%) Opg Profit Margin (%) Net Profit Margin (%) ROAE (%) ROA (%) ROCE (%) Div Payout Ratio (%) Net Interest Cover (x)

Source: Company, DBS Bank

Page 4

2013A

2014A

2015A

2016F

2017F

866 (859) 7 0 7 0 (35) (7) (1) (35) (10) 0 0 (45) (45) 7

746 (798) (52) 0 (52) 2 (95) (5) (81) (232) 9 0 0 (223) (141) (111)

677 (717) (40) 0 (40) 0 (35) (6) (192) (273) 8 0 0 (264) (72) (38)

744 (699) 44 0 44 0 0 (4) 0 41 (2) 0 0 39 39 91

802 (736) 66 0 66 0 0 (1) 0 65 (10) 0 0 55 55 113

40.1 nm nm 56.5

(13.8) nm nm (391.2)

(9.2) 66.3 23.4 (18.5)

9.8 nm nm nm

7.8 24.0 49.3 41.4

0.8 0.8 (5.2) (20.3) (4.3) 0.9 N/A 1.1

(7.0) (7.0) (29.9) (93.4) (21.9) (7.0) N/A (11.3)

(5.9) (5.9) (39.0) (107.0) (26.3) (5.4) N/A (7.1)

6.0 6.0 5.2 16.5 3.8 5.6 0.0 12.0

8.3 8.3 6.9 19.5 5.4 7.7 0.0 69.0

Margins Trend 9.0% 4.0% -1.0% -6.0%

2013A

2014A

2015A

2016F

2017F

-11.0% -16.0% -21.0% -26.0% -31.0% -36.0% -41.0% Operating Margin %

Net Income Margin %

Company Focus Tiger Airways Holdings

3.1 (16.1) 32.3 31.7

(13.2) 59.8 (54.2) (179.6)

24.2 nm nm nm

(5.5) (18.1) nm nm

(14.8) (14.8) (58.2)

(9.7) (9.7) (38.6)

(17.2) (17.2) (124.3)

2.2 2.2 1.2

(1.3) (1.3) (10.9)

2013A

2014A

2015A

2016F

2017F

Net Fixed Assets Invts in Associates & JVs Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets

782 50 43 127 24 4 20 1,049

570 33 74 182 110 5 12 986

454 0 126 318 19 11 95 1,022

408 0 126 416 21 12 25 1,008

362 0 126 459 22 13 25 1,008

ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Shareholder’s Equity Minority Interests Total Cap. & Liab.

148 154 129 366 53 199 0 1,049

53 129 141 307 76 279 0 986

84 106 151 223 244 215 0 1,022

84 116 157 153 244 254 0 1,008

84 125 163 83 244 309 0 1,008

Non-Cash Wkg. Capital Net Cash/(Debt) Debtors Turn (avg days) Creditors Turn (avg days) Inventory Turn (avg days) Asset Turnover (x) Current Ratio (x) Quick Ratio (x) Net Debt/Equity (X) Net Debt/Equity ex MI (X) Capex to Debt (%) Z-Score (X)

(235) (388) 1.4 59.4 10.6 0.8 0.4 0.3 2.0 2.0 (4.1) 0.4

(143) (178) 2.2 67.5 32.1 0.7 1.0 0.6 0.6 0.6 (49.8) (0.1)

(131) 11 4.4 63.1 34.7 0.7 1.3 1.0 CASH CASH (4.8) 0.1

(215) 179 5.8 62.0 11.1 0.7 1.3 1.2 CASH CASH 0.5 0.9

(227) 292 5.9 63.9 11.4 0.8 1.4 1.3 CASH CASH 0.7 1.2

Balance Sheet (S$ m) FY Mar

Source: Company, DBS Bank

Page 5

10%

200

0% 150 -10% 100

-20%

50

-30%

0

-40%

Revenue

4Q2015

(4.7) (59.4) (175.6) 19.4

Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (%) Margins Gross Margins (%) Opg Profit Margins (%) Net Profit Margins (%)

20%

3Q2015

172 (174) (2) 0 (2) 0 0 (1) (17) (21) 2 0 (19) (1) 10

2Q2015

182 (178) 4 0 4 0 0 (2) 0 3 0 0 2 2 12

1Q2015

147 (172) (25) 0 (25) 0 0 (1) (160) (187) 4 0 (182) (22) (17)

4Q2014

169 (185) (16) 0 (16) 0 (35) (1) (15) (68) 2 0 (65) (51) (43)

30%

250

3Q2014

164 (188) (24) 0 (24) 0 (21) (4) (51) (100) 5 0 (96) (45) (37)

300

2Q2014

4Q2015

1Q2014

3Q2015

4Q2013

Revenue Cost of Goods Sold Gross Profit Other Oper. (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Net Profit Net profit bef Except. EBITDA

Revenue Trend 2Q2015

3Q2013

Quarterly / Interim Income Statement (S$ m) FY Mar 4Q2014 1Q2015

Revenue Growth % (QoQ)

Asset Breakdown (2015) Debtors 1.4%

Net Fixed Assets 57.1%

Assocs'/JVs 0.0%

Inventory 2.4% Bank, Cash and Liquid Assets 39.1%

Company Focus Tiger Airways Holdings

Cash Flow Statement (S$ m) FY Mar Pre-Tax Profit Dep. & Amort. Tax Paid Assoc. & JV Inc/(loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Capital Exp.(net) Other Invts.(net) Invts in Assoc. & JV Div from Assoc & JV Other Investing CF Net Investing CF Div Paid Chg in Gross Debt Capital Issues Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Opg CFPS (S cts) Free CFPS (S cts)

Capital Expenditure 2013A

2014A

2015A

2016F

2017F

(35) 34 (3) 35 55 0 86 21 0 (75) 0 0 (54) 0 (69) 0 2 (69) 0 (38) 3.7 13.0

(232) 34 0 95 6 0 (97) 179 0 (196) 0 30 13 (2) (154) 294 3 137 0 53 (10.4) 8.3

(273) 37 (1) 35 14 1 (186) 15 (8) (59) 0 0 (53) (4) (53) 227 4 170 0 (69) (8.0) (6.8)

41 47 (2) 0 84 2 172 (1) 0 0 0 0 (1) 0 (70) 0 5 (70) 0 101 3.5 6.8

65 47 (10) 0 12 3 117 (1) 0 0 0 0 (1) 0 (70) 0 6 (70) 0 46 4.2 4.6

200 180 160 140 120 100 80 60 40 20 0 2013A

2014A

2015A

Source: Company, DBS Bank

Target Price & Ratings History 0.46

S$

0.41

S.No .

2

1: 2:

0.36

4 6

3 0.31 1

5

0.26

0.21 May-14

Sep-14

Jan-15

May-15

Not e : Share price and Target price are adjusted for corporate actions.

Source: DBS Bank

Page 6

2016F

Capital Expenditure (-)

Cl o s i n g Ta rg e t R a ti n g Pri c e Pri c e 05 May 14 0.33 0.29 Fully Valued 19 Jun 14 0.40 0.29 Fully Valued Da te

3:

31 Jul 14

0.35

0.25

4:

30 Jan 15

0.34

0.33

Fully Valued Buy

5:

11 Feb 15

0.32

0.33

Buy

6:

11 Mar 15

0.32

0.39

Buy

2017F

Company Focus Tiger Airways Holdings

DBS Bank recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return i.e. > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

Share price appreciation + dividends GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Bank Ltd. This report is solely intended for the clients of DBS Bank Ltd and DBS Vickers Securities (Singapore) Pte Ltd, its respective connected and associated corporations and affiliates (collectively, the “DBS Vickers Group”) only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS Bank Ltd. The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd., its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”)) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies. Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the company (or companies) referred to in this report. The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that: (a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and (b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments stated therein. Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report. DBS Vickers Securities (USA) Inc ("DBSVUSA")"), a U.S.-registered broker-dealer, does not have its own investment banking or research department, nor has it participated in any investment banking transaction as a manager or co-manager in the past twelve months.

ANALYST CERTIFICATION The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report. As of the date of the report is published, the analyst and his/her spouse and/or relatives who are financially dependent on the analyst, do not hold interests in the securities recommended in this report (“interest” includes direct or indirect ownership of securities).

COMPANY-SPECIFIC / REGULATORY DISCLOSURES 1. DBS Bank Ltd., DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”), their subsidiaries and/or other affiliates do not have a proprietary position in the securities recommended in this report as of 31 Mar 2015. 2.

DBS Bank Ltd., DBSVS, DBSVUSA, their subsidiaries and/or other affiliates may beneficially own a total of 1% of any class of common equity securities of the company mentioned as of 31 Mar 2015.

3.

Compensation for investment banking services: DBS Bank Ltd., DBSVS, DBSVUSA, their subsidiaries and/or other affiliates have received compensation, within the past 12 months, and within the next 3 months may receive or intend to seek compensation for investment banking services from the Tiger Airways.

Page 7

Company Focus Tiger Airways Holdings

DBSVUSA does not have its own investment banking or research department, nor has it participated in any investment banking transaction as a manager or co-manager in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.

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Dubai

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