Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

On the 9 June, <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> disclosed in its massive recapitalisation proposal <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0609/2020060900356.pdf" target="_blank" rel="noopener">announcement</a>, that:
<blockquote>
By the fourth quarter of 2020, Cathay Pacific’s management team will recommend to the Board the optimum size and shape of the Cathay Pacific Group to meet the air travel needs of Hong Kong while keeping Cathay Pacific’s financial status at a healthy level and meeting its responsibilities to Shareholder - <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0609/2020060900356.pdf" target="_blank" rel="noopener">page 6</a>
</blockquote>
This morning, Cathay <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/1021/2020102100213.pdf" target="_blank" rel="noopener">announced</a> its board had approved the following restructuring plan:
<ul>
<li>Its wholly-owned Cathay Dragon, will cease its operations with effect from today. It is intended that regulatory approval will be sought for a majority of Cathay Dragon’s routes to be operated by the Company and wholly-owned subsidiary low-cost carrier, Hong Kong Express Airways.</li>
<li>Approximately 8,500 positions across the Cathay Pacific Group (including Cathay Dragon) will be eliminated, accounting for around 24% of the Cathay Pacific Group’s headcount of 35,000.</li>
<li>Hong Kong-based cabin and cockpit crew of Cathay Pacific will be asked to agree to changes in their conditions of service which are designed, inter alia, to match remuneration more closely to productivity and to enhance market competitiveness.</li>
</ul>
This restructuring will cost HK$2.2bn, to be funded internally. 
Cathay is still running at a HK$1.5-HK$2bn/monthly loss. This restructuring is expected to save HK$500mn/month once fully implemented in 2021.
Separately <a href="https://www.smartkarma.com/entities/swire-pacific-ltd-cl-a" target="_blank" data-smartkarma-citation="entities:10433:1" rel="noopener">Swire Pacific (A) (19 HK)</a>'s discount to NAV appears to have met support at around the current NAV discount.
As always, more below the fold.

On the 9 June, Cathay Pacific Airways (293 HK) disclosed in its massive recapitalisation proposal announcement, that:

By the fourth quarter of 2020, Cathay Pacific’s management team will recommend to the Board the optimum size and shape of the Cathay Pacific Group to meet the air travel needs of Hong Kong while keeping Cathay Pacific’s financial status at a healthy level and meeting its responsibilities to Shareholder - page 6

This morning, Cathay announced its board had approved the following restructuring plan:

Its wholly-owned Cathay Dragon, will cease its operations with effect from today. It is intended that regulatory approval will be sought for a majority of Cathay Dragon’s routes to be operated by the Company and wholly-owned subsidiary low-cost carrier, Hong Kong Express Airways.
Approximately 8,500 positions across the Cathay Pacific Group (including Cathay Dragon) will be eliminated, accounting for around 24% of the Cathay Pacific Group’s headcount of 35,000.
Hong Kong-based cabin and cockpit crew of Cathay Pacific will be asked to agree to changes in their conditions of service which are designed, inter alia, to match remuneration more closely to productivity and to enhance market competitiveness.

This restructuring will cost HK$2.2bn, to be funded internally. 
Cathay is still running at a HK$1.5-HK$2bn/monthly loss. This restructuring is expected to save HK$500mn/month once fully implemented in 2021.
Separately Swire Pacific (A) (19 HK)'s discount to NAV appears to have met support at around the current NAV discount.
As always, more below the fold.

HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

China Southern Airlines / Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/china-southern-airlines-co-ltd" target="_blank" data-smartkarma-citation="entities:1078:1" rel="noopener">China Southern Airlines (1055 HK)</a> has caught up in its passenger traffic in Sep with a 27.5% YoY decline, compared with -32.2% for <a href="https://www.smartkarma.com/entities/china-eastern-airlines-co-h" target="_blank" data-smartkarma-citation="entities:1079:1" rel="noopener">China Eastern Airlines Co (H) (670 HK)</a> and -38.6% for <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>. More importantly, domestic passenger traffic reached a growth of 1.6% YoY, suggesting a full recovery in last month. CSA also performed well on capacity management - achieving the best passenger, cargo and overall load factors for Sep and 9M20 among the big three. We expect the good traffic recovery, solid load factors, QoQ increase in average fare and sharp appreciation in Rmb will support encouraging bottom line rebound in 3Q20, with a slight potential of reporting a profit in the quarter. In our view, CSA remains inexpensive at 0.8x 12-month forward P/B given its underlying recovery momentum and below-average valuation.

China Southern Airlines (1055 HK) has caught up in its passenger traffic in Sep with a 27.5% YoY decline, compared with -32.2% for China Eastern Airlines Co (H) (670 HK) and -38.6% for Air China Ltd (H) (753 HK). More importantly, domestic passenger traffic reached a growth of 1.6% YoY, suggesting a full recovery in last month. CSA also performed well on capacity management - achieving the best passenger, cargo and overall load factors for Sep and 9M20 among the big three. We expect the good traffic recovery, solid load factors, QoQ increase in average fare and sharp appreciation in Rmb will support encouraging bottom line rebound in 3Q20, with a slight potential of reporting a profit in the quarter. In our view, CSA remains inexpensive at 0.8x 12-month forward P/B given its underlying recovery momentum and below-average valuation. 

China Southern Airlines (1055 HK): Impressive Sep Sets Strong Tone for 4Q20

Shanghai International Airport / Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/shanghai-international-airport-co-ltd" target="_blank" data-smartkarma-citation="entities:6511:1" rel="noopener">Shanghai International Airport (600009 CH)</a> witnessed sustained strength on its domestic and cargo throughput in Sep, outperforming both <a href="https://www.smartkarma.com/entities/guangzhou-baiyun-international-airport" target="_blank" data-smartkarma-citation="entities:10819:1" rel="noopener">Guangzhou Baiyun International Airport (600004 CH)</a> and <a href="https://www.smartkarma.com/entities/beijing-capital-international-airport-bcia" target="_blank" data-smartkarma-citation="entities:10626:1" rel="noopener">Beijing Capital International Airport (BCIA) (694 HK)</a> by very significant margins. In fact, SIAC is the only airport among the big three to consecutive YoY growth in domestic passenger traffic in the last two months. In Sep, domestic aircraft movement surged 18.9% YoY and domestic passenger throughput grew 13.5% YoY, and both are impressive turnouts. In our view, the strong domestic performance, good demand during the "double festival" Golden Week and China International Import Expo to be held in Shanghai during 5-10 Nov should ensure continued strength in SIAC's traffic in 4Q20.

Shanghai International Airport (600009 CH) witnessed sustained strength on its domestic and cargo throughput in Sep, outperforming both Guangzhou Baiyun International Airport (600004 CH) and Beijing Capital International Airport (BCIA) (694 HK) by very significant margins. In fact, SIAC is the only airport among the big three to consecutive YoY growth in domestic passenger traffic in the last two months. In Sep, domestic aircraft movement surged 18.9% YoY and domestic passenger throughput grew 13.5% YoY, and both are impressive turnouts. In our view, the strong domestic performance, good demand during the "double festival" Golden Week and China International Import Expo to be held in Shanghai during 5-10 Nov should ensure continued strength in SIAC's traffic in 4Q20.

Shanghai International Airport (600009 CH): Best Momentum Against Peers in Sep

Asian Equities Analyst, Logistics & Transport, Tracking Traffic

Daniel Hellberg

Asian Equities Analyst, Logistics & Transport

Tracking Traffic

Focusing on Asian logistics, transportation, and travel companies

Chinese media reports Chinese tourism activity during the long Golden Week + National Day holiday period declined by about 21% YoY to 637 mn person-visits. Spending on tourism during the period reportedly fell by 28% YoY to 466 bn RMB. 
Some observers are suggesting these numbers show a strong continued recovery in tourism demand since activity collapsed in Q1 this year due to the Covid19 pandemic.
But we disagree.
In our view, the headline 2020 Golden Week+ numbers we have seen so far are not as strong as we would have expected, given a number of factors that actually should have flattered this year's overall activity and spending numbers. 
A closer analysis of the numbers actually suggests tepid tourism demand, in our opinion, and we do not believe the recovery has gained momentum in October.

Chinese media reports Chinese tourism activity during the long Golden Week + National Day holiday period declined by about 21% YoY to 637 mn person-visits. Spending on tourism during the period reportedly fell by 28% YoY to 466 bn RMB. 
Some observers are suggesting these numbers show a strong continued recovery in tourism demand since activity collapsed in Q1 this year due to the Covid19 pandemic.
But we disagree.
In our view, the headline 2020 Golden Week+ numbers we have seen so far are not as strong as we would have expected, given a number of factors that actually should have flattered this year's overall activity and spending numbers. 
A closer analysis of the numbers actually suggests tepid tourism demand, in our opinion, and we do not believe the recovery has gained momentum in October.  

China's 'Golden Week': Headline Tourism Numbers Hardly Shine

Guangzhou Baiyun International Airport / Equity Bottom-Up

There is full recovery in both domestic aircraft movement and passenger throughput at <a href="https://www.smartkarma.com/entities/guangzhou-baiyun-international-airport" target="_blank" data-smartkarma-citation="entities:10819:1" rel="noopener">Guangzhou Baiyun International Airport (600004 CH)</a> in Sep, which registered YoY growth of 8.5% and 0.7%, respectively. The figures suggested further strength in the domestic market and should reflect positively on a QoQ in GBIA's profitability improvement. Also, the initial figures for the Golden Week have pointed to a 4.9% higher daily aircraft movement and 8.2% higher daily passenger throughput than the average in Sep. We believe the rebound of international passenger will be an increasingly important driver for GBIA's traffic recovery over the next 12 months. For example, <a href="https://www.smartkarma.com/entities/china-southern-airlines-co-ltd" target="_blank" data-smartkarma-citation="entities:1078:1" rel="noopener">China Southern Airlines (1055 HK)</a> has already increased its international flights departing from Guangzhou from 16 in Sep to 20 in Oct. GBIA has also obtained approval for non-public issuance of A-shares to its parent to raise fresh equity of Rmb3.2bn, and we believe these are all positive developments for the company.

There is full recovery in both domestic aircraft movement and passenger throughput at Guangzhou Baiyun International Airport (600004 CH) in Sep, which registered YoY growth of 8.5% and 0.7%, respectively. The figures suggested further strength in the domestic market and should reflect positively on a QoQ in GBIA's profitability improvement. Also, the initial figures for the Golden Week have pointed to a 4.9% higher daily aircraft movement and 8.2% higher daily passenger throughput than the average in Sep. We believe the rebound of international passenger will be an increasingly important driver for GBIA's traffic recovery over the next 12 months. For example, China Southern Airlines (1055 HK) has already increased its international flights departing from Guangzhou from 16 in Sep to 20 in Oct. GBIA has also obtained approval for non-public issuance of A-shares to its parent to raise fresh equity of Rmb3.2bn, and we believe these are all positive developments for the company.

Guangzhou Baiyun Intl Airport (600004 CH): Sep Marked the First Dual YoY Growth

China

Air China Limited provides passenger, cargo, and airline-related services in China.  The Company is primarily based in Beijing and a major hub for domestic and international air transportation.  Air China's airline-related services include aircraft maintenance, repair, overhaul service, ground services, and in-flight catering services.

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Air China Ltd (H) (753 HK)

Cathay Pacific: Exit The Dragon

With passenger travel unlikely to return to pre-COVID-19 levels until 2024, the inevitable staff cut is announced, together with the cessation of...

David Blennerhassett

China Southern Airlines (1055 HK): Impressive Sep Sets Strong Tone for 4Q20

China Southern has the best traffic and load factor among the big three airlines in Sep. Good traffic, load expansion, fare improvement and Rmb...

Osbert Tang, CFA

Shanghai International Airport (600009 CH): Best Momentum Against Peers in Sep

Shanghai Intl Airport recorded encouraging growth of 18.9% in domestic aircraft movement and 13.5% in domestic passenger traffic in Sep. They are...

Osbert Tang, CFA

China's 'Golden Week': Headline Tourism Numbers Hardly Shine

Contrary to some, we do not believe headline tourism numbers from the recent Golden Week suggest improving conditions in China's domestic travel...

Tracking Traffic

Guangzhou Baiyun Intl Airport (600004 CH): Sep Marked the First Dual YoY Growth

Sep marked the first month of positive growth in both domestic aircraft movement and passenger throughput at Guangzhou Baiyun Intl Airport; and we...

Osbert Tang, CFA

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