Cathay Pacific (00293)A profit warning was issued after the market closed on Friday (20th). The affected affiliate Air China (00753) recorded a huge loss. Cathay Pacific expects a loss of about 6.4 billion to 7 billion yuan in 2022, which has expanded from a loss of 5.5 billion yuan in 2021. The analysis pointed out that the mainland is at the peak of the epidemic, and Chinese aviation stocks including Air China will see a big improvement in the second quarter at the earliest. Major banks are cautious about Cathay Pacific’s short-term prospects, but believe that the group can turn losses this year.
Cathay Pacific, which will announce its full-year results on March 8, forecast on Friday that its losses would widen year-on-year in 2022. Cathay Pacific explained that the performance of its airlines and subsidiaries in the second half of last year has improved significantly compared to the first half of the year, but it will still record a slight loss for the whole of last year, while the group’s affiliates are expected to record huge losses.
Passenger capacity increased by 7.7 times last month, freight was inferior
Statistics show that Cathay Pacific’s share of the losses of affiliated companies in the first half of 2022 is 2.48 billion yuan. According to Air China’s performance report, it recorded a loss of 8.67 billion yuan in the third quarter of last year, a substantial increase from the 3.54 billion yuan in the same period in 2021. When Cathay Pacific released its interim results last year, it predicted that the performance of its airlines and subsidiaries in the second half of the year will be better than that in the first half of the year, but the performance of affiliated companies still faces great challenges.
Cathay Pacific lost about 5 billion yuan in the first half of last year, that is, the loss in the second half of the year ranged from 1.4 billion to 2 billion yuan, which has narrowed significantly compared with the first half of the year, reflecting that after the relaxation of Hong Kong and overseas immigration measures, the business has greatly improved.
On the same day, Cathay Pacific’s December passenger traffic data showed a significant improvement year-on-year, with passenger volume soaring by 768.7% to approximately 801,000 passengers during the month, while cargo performance remained sluggish.
Lin Shaobo, the new CEO of Cathay Pacific, said that he is happy to see that the operating and financial conditions of the airlines and subsidiaries of the group continued to improve in the second half of last year. Hong Kong gradually relaxed travel restrictions and quarantine requirements, which helped the group achieve positive cash flow from overall operations in the second half of last year. He also said that there are still many challenges in the future, and he will promote the return to normal with a prudent and responsible attitude.
Lin Shaobo sees strong demand for leisure travel
Looking forward to the passenger and cargo performance at the beginning of this year, Cathay Pacific expects that passenger demand will continue to be strong in January and during the Lunar New Year period, mainly driven by the demand for travel and leisure travel; while freight transport is due to the impact of the epidemic in the Mainland and the Lunar New Year in January this year. Therefore, there will still be challenges before mid-February. In addition, the group’s Cathay Pacific and Hong Kong Express, the passenger flight capacity is expected to return to 70% before the epidemic by the end of this year, and the goal is to return to the pre-epidemic level by the end of next year.
Chen Weicong, an investment strategist at the Wealth Management Division of the Bank of East Asia, believes that Cathay Pacific’s capacity is constrained by manpower issues, recruitment and training will take time, and passenger transport demand is temporarily constrained by the requirement that mainland tourists come to Hong Kong to submit negative nucleic acid results within 48 hours. As for the affiliated company Air China, like other Chinese airline stocks, the recent peak period of infection in the mainland is facing, and the performance may not improve significantly until the second quarter. Except that the peak of the epidemic has passed by then, Qingming and May Day holidays are also traditional travels for mainland people. peak season.
DBS calls for buy with target price raised to $10.5
Daiwa released a report a few days ago and mentioned that Cathay Pacific was affected by the travel restrictions imposed on Chinese flights and tourists by certain overseas countries, and the labor dispute between Cathay Pacific and its employees, which limited the short-term upside of the stock price, and downgraded its rating from “buy” to “run”. Win the market”, the target price remains at 9.5 yuan.
DBS believes that the restart of China’s economy has made Cathay Pacific’s recovery prospects clearer. The recovery of passenger revenue indicates that the group will have strong profit momentum in the next two years. Even in the face of short-term challenges such as weak freight business and manpower problems, it will still be able to turn losses this year. DBS predicts that a large backlog of outbound travel demand is expected to drive Cathay Pacific’s EBITDA (earnings before interest, taxes, depreciation and amortization) from 2021 to 2024 to record a compound annual growth rate (CAGR) of 17%, so Cathay Pacific is rated by “Hold” was upgraded to “Buy”, and the target price was raised from 9 yuan to 10.5 yuan. Cathay Pacific’s stock price closed at 8.38 yuan on Friday, a slight increase of 0.48%.