Broker's take: Cathay Pacific poised to ride on US, Europe reopening; upgraded to 'buy' by UOBKH

HONG Kong flag carrier Cathay Pacific Airways will likely see a faster rate of travel recovery in 2022 with its key markets in the US and Europe reopening their borders, UOB Kay Hian (UOBKH) said.

In a report on Monday (Oct 11), analyst Ajith K upgraded the Hong Kong-listed airline to a "buy" call, and raised its target price to HK$7.77 from HK$5.83. He noted that "the worst is over for the stock", adding that it has also outperformed Hong Kong's Hang Seng Index in September.

Shares of Cathay Pacific were trading at HK$7.08, up HK$0.02 or 0.3 per cent, as at the midday break on Monday.

Ajith had raised his 2022 estimates for the airline's passenger traffic to 42 per cent of pre-pandemic levels from 28 per cent, and for its passenger load factor by 6 percentage points to 68 per cent.

He noted that Cathay Pacific had resumed long-haul flights to its two biggest markets in North America and Europe, which accounted for 27 per cent and 22 per cent of the airline's pre-pandemic passenger traffic in 2019, respectively.

Its traffic to North America also rose threefold in August despite stringent quarantine requirements in Hong Kong, boosted by capacity additions to New York, San Francisco and Los Angeles, as well as flight resumptions to Chicago and Boston.

Ajith also expects Hong Kong will open its borders after the Winter Olympics in Beijing in February 2022, especially if China abandons its zero-Covid-19 strategy and vaccination rates in Hong Kong improve to 80 per cent for those aged between 20 to 59.

Furthermore, high fuel prices are likely not an immediate concern for Cathay Pacific, as it has hedged more than 80 per cent of its fuel concerns for H2 2021, and its hedge cover is around 50 per cent of its planned capacity for H1 2022, the analyst added.

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