20141211-法国巴黎银行-Improving_ROE_already_priced_in_11页_436kb

Cathay Pacific (293 HK) Summary

Core Content

Cathay Pacific, the flag carrier of Hong Kong and part of the Swire Group, is analyzed in this report with a HOLD recommendation. The stock has reached the analyst's target price of HKD17.20, and due to the current valuation, the analyst believes there is limited further upside. The recommendation is based on the expectation that the benefits from the oil price slump are already reflected in the stock price, and the company faces challenges in improving its pricing power in the competitive environment.

Main Viewpoints

• Target Price: The target price for Cathay Pacific is set at HKD17.20, with a slight increase from the previous target of HKD17.00 to reflect slightly higher earnings expectations for 2015.
• Valuation Methodology: The valuation is based on a P/BV multiple of 1x, which is considered fair given the forecasted ROE of 7.4% for 2015 and the estimated cost of equity of 7.2%.
• ROE and Earnings Growth: The ROE is expected to increase from 5.8% in 2014 to 7.4% in 2015, and further to 10.0% in 2016. The recurring EPS is projected to grow from 0.94 in 2014 to 1.24 in 2015 and 1.78 in 2016.
• Fuel Price Impact: The analyst has revised the fuel price estimates, with a blended average of USD103.50 per barrel for 2015 and USD92.00 for 2016. Around 50% of 2015 fuel consumption is hedged at USD100 per barrel of Brent.
• Capacity and Yield: Capacity is expected to grow by 6% in 2015, which could put pressure on yields and RASK. The analyst forecasts a 6.0% increase in capacity for 2015, leading to a decline in RASK.
• Cargo Business: Cargo traffic is expected to grow, but yield is forecasted to decline due to overcapacity in the market. The company benefits from lower fuel prices and improved fuel efficiency with the introduction of new aircraft.
• Stock Performance: The stock has shown positive performance in the past 12 months, with a 7.9% gain. The analyst expects that the stock price has reached its target and that further upside is unlikely.

Key Information

Financial Highlights

Key Risks

• Upside Risks: Higher traffic, load factor, yield, and lower fuel prices.
• Downside Risks: Lower traffic, load factor, yield, and higher fuel prices.

Catalysts

• Cargo: Reduced competition due to capacity cuts by rivals.
• Passenger: Stronger-than-expected economic environment in the US and Europe, leading to higher yields and lower competition on short-haul routes.

Fuel Hedging and Efficiency

• Hedging Coverage: 50% of 2015 fuel consumption is hedged at USD100/barrel of Brent.
• Fuel Efficiency: The airline is introducing new aircraft, such as the A330-300 and B777-300ER, which are more efficient and will help reduce fuel costs.

Valuation Metrics

• P/BV (x): 1.0 (current), 1.0 (2015E), 0.9 (2016E)
• EV/EBITDA (x): 6.6 (2015E), 5.1 (2016E)
• Recurring P/E (x): 14.1 (2015E), 9.8 (2016E)

Market Recommendations

• Market Recs: 14% positive, 7% neutral, 2% negative

Conclusion

The analyst concludes that while Cathay Pacific is expected to see an improvement in ROE and earnings due to lower fuel prices and fleet efficiency, the current valuation suggests limited upside. The stock has reached the target price, and the recommendation is to HOLD as the positives from the oil price slump are already priced in. The company is expected to trade at a discount to its historical P/BV multiple of 1.2x due to the lower ROE forecast.