DBS on Tiger Airways' profit jump: good performance but you need a strong finish

The carrier’s revenues for 2Q11 might have risen by 35% yoy, but the bank says the figure could have been higher.

In a statement, DBS said the budget airline’s operating profit of S$9.6m, which reversed its $2.9m loss in 2Q10, was slightly below expectations, saying both revenue and operating earnings would have been higher if not for flight cancellations experienced during the quarter due to technical issues for two of its aircraft.

The bank has also lowered its FY11 and FY12 forecasts by c.5% each to factor in lower available capacity despite predicting a stronger second half for the company, which recently announced that seven more plans will be added to its fleet in 2H11. However, it is banking on Australia’s upcoming peak travel season to boost Tiger Airways’ 2H11 operating profit of $37m and lift full year profit to the projected $64m.

DBS is also maintaining its "hold" rating for the carrier, saying, “whilst we like Tiger Airway’s long- term prospects, we believe the Group needs to deliver strong results in 3Q/ 4Q to regain investors’ confidence in its execution ability before the stock can re-rate."