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Broker's take: OCBC keeps 'sell' call on Tigerair

Thursday, January 8, 2015 - 12:58
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OCBC has maintained its "sell" call on Tiger Airways Holdings, while decreasing its fair value estimate from S$0.21 to S$0.18.

OCBC has maintained its "sell" call on Tiger Airways Holdings, while decreasing its fair value estimate from S$0.21 to S$0.18.

In a bid to repair its balance sheet, Tigerair did a rights issue exercise, which closed on Dec 29, 2014, and was fully subscribed with total valid acceptances and excess applications received representing 156.7 per cent of the 1,147,102,770 rights shares available for issuance.

Post the rights issue, Tigerair's FY15 forecast book value strengthens from S$15.9 million to S$242.4 million as its share base increases to a total of 2,496,635,441 ordinary shares.

OCBC believes the stronger balance sheet and cash balance will help Tigerair in its turnaround strategy through its alliance with Scoot, which is expected to see an impact from H2 FY16 onwards.

In the near term, declining oil prices will help to improve profitability. However, OCBC says that depressed yields due to overcapacity in the region will continue to mute the airline's earnings this year, negating the effects of lower oil prices.

Factoring in both positive and negative factors of lower oil prices and depressed yields, OCBC expects net loss to narrow from S$6 million to S$1.4 million in FY16.

On Thursday afternoon, Tigerair was trading at S$0.265, a 1.9 per cent rise from Wednesday's close.