Investment summary

We expect overall demand of Cathay to recover moderately, while cost reductions continue to work, but rising financial expenditure might erode some of the savings. Based on the latest profit forecast, we will give the company a 12-month target price of HK$14.3, corresponding to an expected P/B of 0.9/0.85 times for 2018/2019, and upgrade to the “accumulate” rating. (Closing price as at 11 July 2018)

2017 Result Updates

Cathay Pacific recorded a loss of HK$1,259 million in 2017, which is double the annual loss in the previous year, with a loss of 32 cents per share, maintaining a dividend of 5 cents per share. The results represented a loss but was better than market expectations. This was particularly marked in the second half of last year when the profit went out of the red, earning HK$792 million.

Oil prices rose, but fuel hedging losses decreased. Fuel costs increased by 11.3% during the period as the average aviation gasoline price went up by 23% and the fuel consumption by 2.9%. However, some of the increase was offset by a 24.6% reduction in fuel hedging losses.