OCBC Investment Research has maintained its "sell" call on Tigerair despite a profitable quarter, calling the 23 per cent rally in its share price on Monday "overdone".
"We remain cautious on the outlook of Tigerair as one profitable quarter does not guarantee the success of its turnaround strategy," said its analyst Eugene Chua. "We prefer to wait and see if these improvements can be sustained."
In its results released on Monday, Tiger swung into the black for Q3 FY2015 with a net profit of S$2.19 million, reversing a loss of S$118.54 million in the corresponding quarter a year ago.
Revenue for the quarter under review climbed 5.9 per cent year-on-year to S$182.26 million, aided by better yields and higher traffic volume.
Restructuring efforts by Tigerair's management seem to be taking off as consolidation of its business to focus on Singapore operations saw its Q3 FY2015 passenger yield improved 4.9 per cent year-on-year, said Mr Chua, while load factor recorded 6.2 percentage point growth
"We believe the longer-term success of Tigerair hinges on driving growth and managing costs through the alliance with Scoot as well as with its parent, Singapore Airlines Limited (SIA). While the key idea is to capture interlining passenger traffic between Tigerair and Scoot through coordination of connecting flights, slot timings at Changi Airport are generally granted semi-annually for each route," he said in the report. "As such, we expect impact on passenger traffic growth to materialise gradually only from 2HFY16 onwards."
Mr Chua narrowed his estimate of 2015 net losses to S$246.6 million, from S$255.3 million previously, and increased his fair value estimate from 18 Singapore cents to 23 Singapore cents.
Tigerair traded at 31.5 Singapore cents at 9.50am on Tuesday, down 1.6 per cent from the previous close.