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Equity Bottom-Up

Cathay Pacific Airways / Equity Bottom-Up

We reiterate our fair value estimate of HKD 8.50 per share for no-moat <a href="https://www.smartkarma.com/entities/243" target="_blank" data-smartkarma-citation="entities:243:1">Cathay Pacific Airways (293 HK)</a> following Qatar Airways’ decision to acquire a 9.6% stake in the company. While the move may foster greater cooperation between the two companies and potentially reduce the competitive pressure on some of Cathay’s routes in Southeast Asian markets, we believe it will lead to only marginal improvement to the company’s fundamentals. We reaffirm our view that establishing a more meaningful presence in the burgeoning Chinese market is more critical to Cathay’s long-term net earnings growth. We consider shares overvalued at the current market price relative to Cathay’s tepid earnings growth outlook.According to the company announcement, Qatar Airways will acquire the 9.6% stake from Hong Kong-based <a href="https://www.smartkarma.com/entities/8122" target="_blank" data-smartkarma-citation="entities:8122:1">Kingboard Chemical Holdings (148 HK)</a> for HKD 5.16 billion (or USD 661 million). Following the transaction, Qatar will become Cathay’s third-largest shareholder after Swire Pacific (45% stake) and Air China (30% stake). Both Qatar and Cathay Pacific are members of the Oneworld alliance, and we think the stake purchase will deepen their cooperation in Southeast Asian markets, where Qatar and other Middle Eastern airlines are relative newcomers. We will probably see expansion of code-sharing between the two companies, which should help generate an additional revenue stream for Cathay, given its leading market share position in the region. Still, the bottom-line impact is likely to be marginal, given the usual flat fee structure of code-sharing agreements. At this stage, we still believe Cathay should work more closely with Air China to tap into the mainland’s fast-growing aviation market in order to achieve sustainable long-term net income growth.Analyst: John Hu

We reiterate our fair value estimate of HKD 8.50 per share for no-moat Cathay Pacific Airways (293 HK) following Qatar Airways’ decision to acquire a 9.6% stake in the company. While the move may foster greater cooperation between the two companies and potentially reduce the competitive pressure on some of Cathay’s routes in Southeast Asian markets, we believe it will lead to only marginal improvement to the company’s fundamentals. We reaffirm our view that establishing a more meaningful presence in the burgeoning Chinese market is more critical to Cathay’s long-term net earnings growth. We consider shares overvalued at the current market price relative to Cathay’s tepid earnings growth outlook.According to the company announcement, Qatar Airways will acquire the 9.6% stake from Hong Kong-based Kingboard Chemical Holdings (148 HK) for HKD 5.16 billion (or USD 661 million). Following the transaction, Qatar will become Cathay’s third-largest shareholder after Swire Pacific (45% stake) and Air China (30% stake). Both Qatar and Cathay Pacific are members of the Oneworld alliance, and we think the stake purchase will deepen their cooperation in Southeast Asian markets, where Qatar and other Middle Eastern airlines are relative newcomers. We will probably see expansion of code-sharing between the two companies, which should help generate an additional revenue stream for Cathay, given its leading market share position in the region. Still, the bottom-line impact is likely to be marginal, given the usual flat fee structure of code-sharing agreements. At this stage, we still believe Cathay should work more closely with Air China to tap into the mainland’s fast-growing aviation market in order to achieve sustainable long-term net income growth.Analyst: John Hu

カタールの株式取得はキャセイの収益に重大な影響を与える可能性は低い