Prospects still bright despite hiccup
Tiger Airway’s stock price reacted to two pieces of news yesterday: (1) A
pilot shortage resulting from industry poaching due to the strong rebound
in the airline industry and; (2) Its CEO and two substantial shareholders
(Indigo and Ryanasia) placing out 65.8m shares at S$1.90/share to a “broad
base of institutional investors”. We are factoring in a 4% increase in
staff costs that will reduce our FY11 and FY12 EPS estimates by 3.7% and 3%
respectively. We are also ascribing a lower P/E multiple of 16.5x
(previously 18x) to FY11 EPS to account for the current negative sentiment
arising from the pilot issue. This brings our new TP to S$2.13 (previously
S$2.45). Maintain BUY.
Pilots poached due to strong industry rebound. It was reported in The
Straits Times that Tiger had to cancel 10 flights over the past four days
due to a shortage of pilots with 20 pilots being poached since June by
other airlines. We understand that during an industry rebound most full
service carriers will tend to poach their staff from the low cost carriers
amid their own capacity expansion, while the LCCs will hire the fresh
graduates. With aggressive hiring in the airline industry, we have
factored in a 4% increase in staff costs.
Operationally sound; brighter prospects in Australia. We note that Tiger’s
operating statistics in July remained strong with 0.52m passengers being
carried (+42% YoY) despite the report that its pilots left in June. We
expect 6.95m passengers for FY11 and as of July, 2.5m passengers (36% of
forecast) were carried. In Australia, Virgin Blue has announced that they
intend to re-direct their focus to the higher end business class travelers
paving way for Tiger to gain more market share in the lower segment.
Thai Tiger likely to go ahead. Thai Airway’s EVP Chockchai Panyayong was
quoted in The Edge saying that the national carrier will review its
alliance with Tiger following the share sale but “if the selloff has no big
impact on management or the shareholding structure (of the JV), Thai Air
will go ahead.” Tiger’s management has revealed that they intend to proceed
with the JV as agreed upon with Tiger’s CEO Tony Davis and Ryanair’s
principal Declan Ryan sitting on Thai Tiger’s board.
Maintain HOLD with target price $1.95 (from previous post)
Source: UOBKH
