HSBC Research: Cathay Pacific (00293.HK) sees a rebound in business demand, with target price significantly raised to HKD 16.
HSBC Global Research published a report indicating that Hong Kong International Airport’s passenger traffic is expected to grow steadily by 15% year-on-year in 2025, while Cathay Pacific Airways’ (00293.HK) passenger volume and revenue passenger kilometers will increase by 26.5% and 29%, respectively, implying a rise in market share. Notably, supported by Hong Kong’s economic recovery, demand for high-yield business class travel is improving. The weakness of the US dollar and Hong Kong dollar should boost inbound tourism.
On the cargo side, although e-commerce continues to drive growth, the gradual resumption of container shipping through the Suez Canal may lead to a return of non-urgent freight to sea transport. Industry-wide aircraft delivery delays, including Cathay Pacific’s orders, are constraining capacity expansion, resulting in higher load factors despite the airline continuing to operate an aging fleet during this period.
The bank raised its forecast for Cathay Pacific’s recurring profits from 2025 to 2027 by 22% to 27%, primarily due to increased passenger and cargo yields, as well as reduced operating expenses. It expects Hong Kong Express’ losses to narrow, which should reduce cash outflows. Additionally, for its 15.09%-held associate company Air China, the bank anticipates it will turn profitable in the fiscal year 2026, with a profit of RMB 3 billion, alleviating a major concern regarding Cathay Pacific’s earnings.
HSBC Global Research resumed coverage of Cathay Pacific with a ‘Buy’ rating, significantly raising the target price from HKD 8.9 to HKD 16, equivalent to a blended price-to-book ratio of 1.53 times.
