FY13 core profit of HKD2,554m (+146.3% YoY) within our expectation, but misses consensus.

Management guides 2014 will be better than 2013, buoyed by better cost efficiency and recovery of Europe and North American routes.

Tweaking FY14 forecast by +2.1%; maintain SELL with a new HKD13.50 TP (vs HKD13.30).

What’s New

Cathay Pacific’s FY13 core net profit was within our forecast at 104%, but fell short of consensus at 92%. The shortfall from consensus was due to a challenging competitive landscape and soft yield environment.

What’s Our View

Cathay Pacific’s FY13 result reaffirms our view that the group continues to face headwinds in the cargo market and competition from other carriers is intensifying. Cathay is holding its ground fairy well, but it is unable to eke out high yields like it managed to in the past. We note that its on-time performance continues to plummet, thus confirming our view that Hong Kong International Airport (HKIA) has reached a critical stage whereby landing slots are scarce and flight delays will be more widespread.

Our FY14-15 earnings forecasts are tweaked up by 2.1% and 1.9% post results housekeeping and latest fleet growth guidance. Our forecasts are 28% and 5% lower than consensus, which underpins our SELL call; consensus will likely downgrade forecasts due to the poor FY13 results. Target price has been raised to HKD13.50 (from HKD13.30) in synch with the revised earnings, based on 14.9x FY14F PER (unchanged), in line with Asia Pacific airline peers.  

Source: Maybank Research - 13 Mar 2014