Tiger Airways can't pop the champagne yet on Virgin Australia

Risk of disapproval still looms.

According to UOB Kay Hian, it believes that the market has not priced in the risk that the Australian authorities might not approve the partial sale of Tiger Airways Australia to Virgin Australia, despite open comments to the Australian media.

The Australia Competition & Consumer Commission’s chairman Rod Sims said “taking out the third player to [give Virgin Australia a better position to take on Jetstar]” is “a very complex equation to weigh up”.

Here's more from UOB Kay Hian:

If the deal falls through, Tiger’s cash flow and book value could be reduced by A$35m and S$0.15/share respectively.

Changi Airport’s plans to raise pax surcharges by S$6.00/pax will also impact the airline’s ability to raise ticket prices in 2013.

Tiger Airways is expected to turn in a net profit for FY14, following the sale of its 60% stake in loss-making Tiger Airways Australia. The stock remains a SELL with a target price of $0.60, valuing it at 1.4x FY14F book value.