BondEvalue

Credit

Hong Kong’s flag carrier Cathay Pacific announced on Wednesday that it is planning to sell 5Y convertible bonds denominated in Hong Kong dollars to shore up cash. The airline is looking to raise HKD 6bn ($774mn) with an option to upsize the deal further via 5Y convertibles at a coupon and yield of 2.25-2.75% and a conversion premium of 30-40% as per IFR. The issuance comes on the back of expectations of greater cash burn for the airline if Hong Kong goes through with further pandemic-related…

Morningstar

Morningstar, Inc.

Equity Bottom-Up

Our HKD 12.20 fair value estimate and no-moat rating are unchanged after Cathay Pacific Airways reported full-year earnings of HKD 0.60 per share, in line with management’s prerelease figures. While the market reacted positively to the announcement, presumably due to higher-than-expected supply growth guidance for 2019, we do not believe new supply will be matched by demand in the near term. Our long-term thesis for the carrier remains in place, but we think the first half of 2019 will be a…

No-moat Cathay Pacific released a profit alert on Feb. 20, guiding a net profit of approximately HKD 2.3 billion versus Morningstar’s estimate of HKD 893 million. This implies the airline made roughly HKD 2.6 billion in the second half of the year. While we applaud the carrier’s efforts in turning profitable after two years of losses, our long-term assumptions for Cathay are unchanged based on this announcement. As a result, we are maintaining our fair value estimate of HKD 12.20 on the operator…

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…

Hong Kong

Cathay Pacific Airways Limited operates scheduled airline services. The Company also provides related services, including airline catering, aircraft handling, and engineering.

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