Broker's Take: OCBC maintains 'sell' rating on Tiger Airways

OCBC Investment Research maintains its "sell" rating on Tiger Airways Holdings, lowering its fair-value estimate to 21 Singapore cents, from 35 Singapore cents previously.

Last week, Tigerair announced a proposal to undertake an 85-for-100 rights issue to raise gross proceeds of up to S$234 million at S$0.20 per rights share. SIA has undertaken to subscribe for its pro-rata entitlement as well as excess rights shares up to total of S$140 million.

SIA also announced that it will convert all its perpetual convertible capital securities (PCCS) holdings into shares prior to the rights issue, raising its stake in Tigerair from 40 per cent to approximately 55 per cent.

Analyst Eugene Chua wrote in a note: "Simply put, if the rights issue is approved, the minimum gross proceeds that Tigerair should receive is at least S$138 million."

The fair-value estimate does not factor in the effects of the rights issue, as it is only at the proposal stage.

Tiger Airways Holdings had previously reported a 10.5 per cent decline in its Q2 FY15 revenue to S$146.7 million; its revenue for the first half of the year dropped 21.1 per cent to S$315.7 million due to exclusion of Tigerair Australia.

It also recorded a 107.7 per cent year-on-year increase in Q2's core loss to S$26.6 million, mainly due to weaker yields - despite the higher traffic volume, which led to a 126.0 per cent increase in H1's core loss to S$44.3 million.

Tigerair's Q2 results were further worsened by large provisions amounting to S$159.1 million. Out of the S$159.1 million, S$99.3 million was provided for onerous aircraft-lease contracts while the remaining provision was for the loss expected from the planned divestment of Tigerair Australia. Taking into account these provisions, Tigerair's Q2 net loss amounted to S$182.4 million, against its previous year's PATMI of S$23.8 million.