Morningstar | Cathay Pacific Remains Fairly Valued Despite Recent Drop in Oil Price
Despite a recent drop in oil price, we maintain our fair value estimate of HKD 12.20 on no-moat Cathay Pacific. The carrier has locked in roughly 30% of its expected fiscal 2019 fuel consumption at Brent price of around USD 65 per barrel. Thus, Cathay is in a less favorable position to benefit from near-term declines in oil price. While shares for the carrier are trading at a 12% discount to our fair value estimate, we recommend investors wait for a larger margin of safety before investing in Cathay Pacific.While the recent data breach has captured much of the attention, Cathay has not received any complaints or litigations so far. We do not expect the breach to have a material financial impact on the carrier. Cathay’s passenger yields are on track for recovery, driven primarily by strong front-end (first and business class) demand, despite intensifying competition on the back-end (economy class). Passenger capacity is set to grow in 2019, mainly resulting from the reconfiguration of economy class, from nine-seat to 10-seat rows, for the carrier’s Boeing 777 aircraft. We think the extension of China’s High-Speed Rail into Hong Kong will have limited impact on Cathay’s business, given only a few cities in Southern China will be faster to travel to via the bullet train compared with flights. Lastly, on the cargo front, we see slowing growth for 2019 as the Sino-U.S. trade war is pulling some demand forward in anticipation of higher tariffs to come.
Cathay Pacific is an international airline registered and based in Hong Kong, offering scheduled passenger and cargo services to 203 destinations in 50 countries and territories. Co. and its subsidiaries are engaged in other related areas including airline catering, aircraft handling, aircraft engineering and cargo terminal operations. Co.'s airline operations are principally to and from Hong Kong. Co.'s segments include: the airline business, which consist of Co.'s passenger and cargo operations; and the non-airline business, which consist of catering, ground handling, aircraft ramp handling services and cargo terminal operations. As of Dec 31 2014, Co. operated 147 aircraft.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
We have operations in 27 countries.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.