Global Mobility/Transport, Equity Long-Short

Mohshin Aziz

Equity Bottom-Up

Cathay Pacific Airways / Equity Bottom-Up

<ul>
<li>FY23 net profit of HKD9.1b, easily beating the consensus forecast of HKD8.5b, and announced a surprise dividend, the first since 2019, signally pandemic effects are over </li>
<li>Perfect execution from the team, leveraging on a strong market </li>
<li>Cathay Pacific is a value <strong>BUY</strong>, our target price of HK$9.90 (+10% UPSIDE) implies 10x FY2024 PE. We will update more after tuning in the 2 pm analyst briefing </li>
</ul>


FY23 net profit of HKD9.1b, easily beating the consensus forecast of HKD8.5b, and announced a surprise dividend, the first since 2019, signally pandemic effects are over 
Perfect execution from the team, leveraging on a strong market 
Cathay Pacific is a value BUY, our target price of HK$9.90 (+10% UPSIDE) implies 10x FY2024 PE. We will update more after tuning in the 2 pm analyst briefing 


Cathay Pacific (293 HK, BUY, TP HK$9.90): FY23 Better than Expected, and Surprise Dividends

Founder & Managing Director, AIR Control Tower, AIR Control Tower

Neil Glynn

Founder & Managing Director, AIR Control Tower

AIR Control Tower

AIR Control Tower is an independent research and analysis platform. Its mission is to provide impactful insight and analysis across the global airline industry at a company and market level via detailed financial models to aid decision making for key stake holders at a time when risks have seldom, if ever, been higher and the global sector grapples with the imperative of funding de-carbonisation. Unique analysis forecasting global carrier-level earnings/cash flows, and restructuring/de-leveraging prospects, is designed to dynamically assess the health of the industry, predict surprises and identify potential requirements for third party support.

Insights on the global airline industry

<ul>
<li>2023 results came in broadly in line with expectations but included a concerning step up in ex-fuel unit cost inflation.</li>
<li>We cut our 2024 EBITDAR by 10% to HK$22.2bn, which drives net income down 21% to HK$6.6bn, leaving us well below consensus.</li>
<li>We revisit Cathay's margin generation problems from the last cycle, illustrating structural problems which require structural solutions.</li>
</ul>


2023 results came in broadly in line with expectations but included a concerning step up in ex-fuel unit cost inflation.
We cut our 2024 EBITDAR by 10% to HK$22.2bn, which drives net income down 21% to HK$6.6bn, leaving us well below consensus.
We revisit Cathay's margin generation problems from the last cycle, illustrating structural problems which require structural solutions.


Cathay Pacific – Rising Inflationary Pressure Expedites Earnings Normalisation

<ul>
<li>We publish a deep dive on historical margin management at Cathay Pacific following Bloomberg reports that Air China is considering raising its 29.99% stake.</li>
<li>We see Cathay's consistent underperformance of the global industry as due to structural disadvantages competing against lower cost competitors without the benefit of attractive joint ventures or M&amp;A.</li>
<li>Our deep dive comparing margin generation to ten major global peers highlights weak pricing power without sufficient offset from staff cost/other cost efficiencies as the key problem.</li>
</ul>


We publish a deep dive on historical margin management at Cathay Pacific following Bloomberg reports that Air China is considering raising its 29.99% stake.
We see Cathay's consistent underperformance of the global industry as due to structural disadvantages competing against lower cost competitors without the benefit of attractive joint ventures or M&amp;A.
Our deep dive comparing margin generation to ten major global peers highlights weak pricing power without sufficient offset from staff cost/other cost efficiencies as the key problem.


Cathay Pacific - Reported Air China Interest Prompts Assessment of Structural Disadvantages

HK/China Equity Long-Short

Osbert Tang, CFA

<ul>
<li>There is room for FY23 result of <a href="https://www.smartkarma.com/entities/cathay-pacific-airways-ltd" target="_blank" data-smartkarma-citation="entities:243:1" rel="noopener">Cathay Pacific Airways (293 HK)</a> to beat market expectations on stronger traffic volume and better yield performance.  </li>
<li>Resumption of more capacity, from 70% of the pre-pandemic level at end-FY23, will drive FY24 earnings with ROE at 12-13%, putting it on an inexpensive 0.65x P/B. </li>
<li>Its associate <a href="https://www.smartkarma.com/entities/air-china-ltd-h" target="_blank" data-smartkarma-citation="entities:8239:1" rel="noopener">Air China Ltd (H) (753 HK)</a> will also benefit from the release of pent-up demand in the domestic market and the recovery in international travel. </li>
</ul>


There is room for FY23 result of Cathay Pacific Airways (293 HK) to beat market expectations on stronger traffic volume and better yield performance.  
Resumption of more capacity, from 70% of the pre-pandemic level at end-FY23, will drive FY24 earnings with ROE at 12-13%, putting it on an inexpensive 0.65x P/B. 
Its associate Air China Ltd (H) (753 HK) will also benefit from the release of pent-up demand in the domestic market and the recovery in international travel. 


Cathay Pacific (293 HK): Taking off with Momentum

<ul>
<li>Cathay Pacific's strong end to 2023 has been well flagged but we think expectations are too low for 2024.</li>
<li>ANA, JAL and Korean Air have each seen unit pax revenue momentum accelerate into calendar 4Q23 which bodes well for 2024 prospects, particularly as manpower challenges slow capacity restoration.</li>
<li>Our 2024 EBITDAR is 5% ahead of consensus while we are 11% ahead at the net income level.</li>
</ul>


Cathay Pacific's strong end to 2023 has been well flagged but we think expectations are too low for 2024.
ANA, JAL and Korean Air have each seen unit pax revenue momentum accelerate into calendar 4Q23 which bodes well for 2024 prospects, particularly as manpower challenges slow capacity restoration.
Our 2024 EBITDAR is 5% ahead of consensus while we are 11% ahead at the net income level.


Cathay Pacific – Strong Pax Momentum Suggests 2024 Can Outperform Expectations

Hong Kong

Cathay Pacific Airways Limited operates scheduled airline services. The Company also provides related services, including airline catering, aircraft handling, and engineering.

Cathay Pacific Airways (293 HK)

Cathay Pacific (293 HK, BUY, TP HK$9.90): FY23 Better than Expected, and Surprise Dividends

Cathay Pacific exceeds profit forecast for FY23, announces surprise dividend, signaling pandemic recovery and strong market performance. Maintain...

Mohshin Aziz

Cathay Pacific – Rising Inflationary Pressure Expedites Earnings Normalisation

FY23 results were greeted with a positive reaction. However, we highlight creeping cost pressure at Cathay which prompts us to expedite earnings...

Neil Glynn

Cathay Pacific - Reported Air China Interest Prompts Assessment of Structural Disadvantages

Deep dive on the root causes of historical CX margin challenges by comparing pre-pandemic margin generation to 10 global airline peers

Neil Glynn

Cathay Pacific (293 HK): Taking off with Momentum

CX is poised to exceed market expectations with solid traffic and improved yield, leading to further growth in FY24. Air China is also expected to...

Osbert Tang, CFA

Cathay Pacific – Strong Pax Momentum Suggests 2024 Can Outperform Expectations

Detailed analysis of Cathay Pacific's 2024 earnings prospects including pax unit revenue momentum and cost control that mirrors its North Asian peers

Neil Glynn

Cathay Pacific (293 HK, BUY, TP HK$9.90): FY23 Better than Expected, and Surprise Dividends

​Cathay Pacific exceeds profit forecast for FY23, announces surprise dividend, signaling pandemic recovery and strong market performance. Maintain...

Mohshin Aziz

Cathay Pacific – Rising Inflationary Pressure Expedites Earnings Normalisation

FY23 results were greeted with a positive reaction. However, we highlight creeping cost pressure at Cathay which prompts us to expedite earnings...

Neil Glynn

Cathay Pacific - Reported Air China Interest Prompts Assessment of Structural Disadvantages

Deep dive on the root causes of historical CX margin challenges by comparing pre-pandemic margin generation to 10 global airline peers

Neil Glynn

Cathay Pacific (293 HK): Taking off with Momentum

​CX is poised to exceed market expectations with solid traffic and improved yield, leading to further growth in FY24. Air China is also expected to...

Osbert Tang, CFA

Cathay Pacific – Strong Pax Momentum Suggests 2024 Can Outperform Expectations

Detailed analysis of Cathay Pacific's 2024 earnings prospects including pax unit revenue momentum and cost control that mirrors its North Asian peers

Neil Glynn

Cathay Pacific exceeds profit forecast for FY23, announces surprise dividend, signaling pandemic recovery and strong market performance. Maintain...

CX is poised to exceed market expectations with solid traffic and improved yield, leading to further growth in FY24. Air China is also expected to...