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Look Towards 2022 For Traffic and Earnings Recovery; Upgrade To BUY

We now anticipate a faster rate of traffic recovery in 2022 as key US and European markets open up. While Mainland China has yet to open up its borders, we believe that the nation will do so, post Winter Olympics in Feb 22. Meanwhile, CX’s August traffic to the US rose threefold mom and the carrier will benefit as Greater China opens. We raise our fair value P/B multiple to 1.3x 2022 adjusted book value from 1.2x previously. Upgrade to BUY. Target price: HK$7.77

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WHAT’S NEW

• Raising our traffic recovery estimates for Cathay Pacific as US opens up its borders. The North American market is Cathay Pacific Airways’ (CX) largest market and accounted for 27% of its pre-pandemic pax traffic in 2019, followed by Europe at 22%. Both markets have opened for long-haul travel. While Hong Kong has not opened up its borders, we believe that it will likely do so, post Winter Olympics at Beijing, especially if China abandons its zero-COVID-19 strategy and vaccination rate in Hong Kong improves towards 80% for those aged between 20-59 (currently it stands at about 75%). Meanwhile, even with
stringent, quarantine requirements in Hong Kong, CX’s traffic to North America rose threefold in August, driven by capacity additions to New York, San Francisco and Los Angeles flights. CX also resumed flights to Chicago and Boston, which generated strong demand. Against this backdrop, we raise our pax traffic assumption for 2022 to 42% of prepandemic levels vs 28% previously. We also raise our 2022 pax load factor by 6ppt to 68%.