【293 Analysis】Cathay Pacific stock price drops 2.5% in half a day; BNP Paribas expects valuation re-rating; analysts say the operating environment remains challenging: oil prices are becoming quite tricky

Cathay Pacific (00293) Having recorded profits for three consecutive years, the stock price surged 4% yesterday but softened on Thursday, falling 2.5% in the half-day session. Last year, Cathay’s net profit increased by 9.5% to approximately HKD 10.8 billion, with revenue rising nearly 12% to over HKD 116.7 billion. However, its subsidiary Hong Kong Express’s losses rapidly expanded to nearly HKD 1 billion. Some major banks have differing views on the company’s performance following the results.

A report from Crédit Agricole states that Cathay’s recurring net profit in the second half of last year exceeded the bank’s expectations, mainly due to freight yield outperforming forecasts, offsetting the underperformance of Hong Kong Express. The bank also believes the market has not fully recognized Cathay’s post-pandemic profit growth and expects its valuation to be re-rated, giving it a “market outperform” rating with a target price of HKD 13.1.

Bank of America maintains a “market underperform” rating on Cathay, believing that the negative impact of rising fuel costs has not yet been reflected, with a target price of HKD 10.9. Citibank predicts that if spot airline fuel prices rise by USD 10, Cathay would need to increase passenger revenue in Europe, Australasia, and South Asia routes (which benefit from Middle Eastern hub disruptions) by about 10% to offset the impact of higher fuel prices. However, ticket price hikes could lead to decreased demand. Citibank maintains a “sell” rating on Cathay mainly due to weak outbound travel growth from China, with a target price of HKD 11.2.

A stock analyst in our video program commented that Cathay’s performance is “moderate,” facing multiple operational challenges. “Fuel prices are tricky, and Hong Kong Express, the low-cost carrier, is losing a lot. Plus, rising fuel prices might make things even more difficult.” He said the company has hedged fuel costs and will adjust fuel surcharges, believing it can temporarily cope with high oil prices, but the operating environment remains tough. He advised investors to stay on the sidelines for now.

The analyst also mentioned that recent overall airline stock trends have weakened, reversing the upward momentum of the past few months. For example, Air China (00753) has broken below key technical levels and is unlikely to regain its upward trend in the short term. He also suggested short-term profit-taking for bearish investors. He believes the overall airline sector should not be rushed into bottom-fishing, “The rally is over for now, the party is over,” and expects the sector to consolidate at low levels for a period.

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