SIA

SIA’s subsidiary low cost carrier Scoot, has signed a JV with Nok Airlines to set up NokScoot, via the acquisition of Pete Air, which will see both companies invest ~$80m each and eventually own ~49% stake each, with the remaining 2% held by Pueannammitr Co. The exisiting company will be renamed NokScoot Airlines. Commenting on the latest JV, SIA guided that Thailand is Asia’s premier tourist destination and a logical hub for Scoot to expand to, with the JV Airline aiming to develop a new market segment and to offer Thai consumers and travellers to Thailand more travel options. Acquiring Pete Air instead of setting up a greenfield venture, would also expedite the startup of NokScoot. The Transaction is not expected to have a material effect on the net tangible assets or earnings per share of SIA for MarFY15. We highlight that Scoot’s latest expansion comes at a time when local peer Tigerair is reducing its overseas exposure, with the ailing ‘Tiger’ announcing yesterday that it is ceasing operations of its 36% owned Indonesian associate Tigerair Mandala from 1 Jul ’14 after failing to sell its ‘struggling cub’ to rivals. With SIA currently trading at 0.93x P/B, we opine that downside could be limited based on its historical trough P/B of ~0.8x (post-GFC) and its solid net cash position of $3.9b. Overall, the street has 7 Buy, 11 Hold and 5 Sell call ratings with a consensus TP of $10.60.