Tigerair

Tigerair: rallied 23% yesterday to $0.320 as it posted the first core profit after eight consecutive quarters of losses. Operating momentum improved on the back of reduction in capacity, reduced competition from major rivals and recovery of tourist demand to SEA post political instability. Both passenger yield and load factor increased, amidst lower capacity. Costs were checked by lower fuel price and staff costs. Furthermore, earnings would have been higher if not for fuel hedging losses at ~US$112/bbl (vs ~US$65/bbl now). Tigerair had hedged ~ 35% of its fuel requirements Jan15 through Mar16. Morgan Stanley sees positive read through for SIA, which adopts the same capacity management. Upsides in passenger yields could be anticipated. However, it kept Underweight rating for Tigerair with TP $0.22. JPMorgan, on the other hand, believes the worst is nearly over for Tigerair, as the turnaround came after it disposed its loss-making associates. Completion of rights issue and potential synergies with Scoot also supports turnaround. The house rates Tiger as Overweight with TP $0.41. Catalysts include: acceleration in ancillary revenue, increased traffic feed from other airlines in Changi Airport, tie-up with Scoot and potential takeover by SIA.