DBS Equity Research in a report on Monday upgraded its rating on shares of Tiger Airways from "fully valued" to "buy" with a target price of S$0.39, on an earnings recovery backed by firmer yields and lower fuel costs.
Analysts Paul Yong and Suvro Sarkar said they expect Tigerair's total fleet to stand pat at 24 aircraft through to Q4 FY2016, and add one more aircraft only in FY2017 (+5.2 per cent). This capacity tightness should help yields and load factors firm up, they added.
Moreover, with jet fuel currently priced at less than US$65 per barrel, and with increasingly less hedging losses, Tigerair's jet fuel bill should be substantially lower.
"We project Tigerair to post an operating profit of S$57 million in FY2016 compared to a loss of S$33 million in FY2015, growing by 35 per cent year-on-year to S$77 million in FY2017. At the bottom line, we project Tigerair to post its first net profit in five years, of S$44 million in FY2016 and growing to S$61 million in FY2017, compared to a loss of nearly S$250 million for FY2015," the report said.
The recently completed rights issue raised net proceeds of S$227.4 million for Tigerair, which has helped to re-capitalise the group's equity position and put it in a net cash position, added the report.
Tigerair is also now a 55.8 per cent-owned subsidiary of Singapore Airlines (SIA), and a closer working relationship with SIA, such as the interline cooperation with Scoot and inclusion in the KrisFlyer programme, should lead to greater benefits in the long run, said the analysts.