Cathay plummets in analysts' views amid turbulence

HONG KONG • Cathay Pacific Airways has collected an unwanted title. Equity strategists have less enthusiasm for the carrier than any other member of the Bloomberg World Airlines Index, according to a ranking of analyst ratings.

Shares of the Hong Kong-based Cathay have tumbled 11 per cent this month, falling to a record low versus Hong Kong's Hang Seng Index on Aug 22, as brokerages including Credit Suisse cut their recommendations on the stock.

Asia's biggest global carrier posted an 82 per cent drop in first-half net income as losses from fuel hedging rose and passenger yields - the amount earned by carrying a person per kilometre, and a key metric of profitability - slumped to their lowest in seven years.

Rising competition from Chinese airlines and capacity constraints at Hong Kong's airport are denting the outlook for Cathay Pacific, according to UBS, the top forecaster for the stock over the past year.

Cathay's passenger yield faces a "multi-year" decline, said Mr Eric Lin, a Hong-Kong based analyst at UBS, who predicts the company's shares will fall a further 3 per cent in the next 12 months.

"We turned very cautious on Hong Kong as a transit hub since the second half of last year."

There are nine sell ratings on the airline, eight neutral recommendations and two buys, according to a Bloomberg survey, giving it a score of 2.26 out of a maximum 5.

That is the lowest among the 27 companies on the Bloomberg World Airlines Index that have ratings. Delta Air Lines has the highest score of 4.73.

Cathay Pacific shocked investors on Aug 17 when it reported net income in the six months to June fell to HK$353 million (S$62 million), compared with the HK$1.07 billion median estimate in a Bloomberg News survey of four analysts.

The stock fell 12 per cent in two days, its biggest loss since 2008. It shed 0.4 per cent at the midday break yesterday. Cathay Pacific declined to comment on its stock price and consensus rating.

Hong Kong-based conglomerate Swire Pacific is the largest shareholder with a 45 per cent stake.

Passenger yields fell 10 per cent to 54.3 Hong Kong cents as an economic slowdown in China hurt premium class demand and depressed corporate travel from Hong Kong to London and New York, according to Cathay Pacific.

The carrier lost HK$4.49 billion from fuel hedges in the first half of the year.

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on August 31, 2016, with the headline 'Cathay plummets in analysts' views amid turbulence'. Print Edition | Subscribe