Cathay Pacific’s Revival Sparks Bullish Outlook, Surpassing Singapore Airlines

Cathay Pacific’s Revival Sparks Bullish Outlook, Surpassing Singapore Airlines

Cathay Pacific Airways Ltd. and Singapore Airlines Ltd. have seen a reversal in their fortunes, and this trend is expected to continue as Hong Kong’s flagship carrier, Cathay Pacific, emerges from years of pandemic restrictions. The recent surge in buy recommendations for Cathay has boosted the ratio of bullish sentiments to the highest level in over a decade. Conversely, Singapore Airlines has experienced a decline in sentiment due to concerns about its valuation.

Cathay Pacific’s outlook has started to improve following its profit forecast for the first six months of 2023. This forecast signals an end to the airline’s prolonged period of losses caused by stringent travel restrictions in Hong Kong. In recent weeks, Cathay’s shares have outperformed those of Singapore Airlines, and if its upcoming earnings report on August 9 confirms positive momentum, there could be a further rebound.

Analysts at JPMorgan Chase & Co., including Karen Li, believe that the post-pandemic earnings potential of Cathay has been underestimated, and they foresee room for upward revisions in Street earnings. The fact that Cathay maintains its leading market share in Hong Kong is a significant advantage, positioning it to benefit from the demand for long-haul transit flights by mainlanders.

Since the beginning of June, Cathay’s shares have rallied by 21%, making it the top-performing airline among its Asian peers. Moreover, Cathay has outperformed Singapore Airlines for two consecutive months, something not seen since December. Although Singapore Airlines has seen an 11% increase during this same period, its year-to-date gains have been overshadowed by Cathay.

Wall Street analysts have already taken notice of Cathay’s promising prospects. Last month, JPMorgan and HSBC Holdings Plc upgraded their ratings for Cathay from neutral to the equivalent of a buy, citing resilient travel demand and earnings growth. Conversely, Citigroup Inc. downgraded Singapore Airlines from buy to sell, stating that the positive earnings outlook for the company has already been factored into its stock price.

Cathay currently has a price-to-book ratio of 1.3 times, making it cheaper than Singapore Airlines which has a ratio of 1.5 times, according to Bloomberg data. Analysts’ 12-month target price suggests an 18% upside for Cathay based on its last closing price, whereas Singapore Airlines is already trading above the consensus projection.

Although Cathay’s rally may experience a temporary pause, as indicated by its overbought status and a slight increase in the put-to-call ratio, analysts betting on an earnings revival remain optimistic. Jason Sum, an analyst at DBS Bank Ltd., expects Cathay to deliver more positive surprises in the near-term, suggesting that there is potential for further upside.

In summary, Cathay Pacific’s impressive turnaround has sparked a bullish outlook, surpassing Singapore Airlines. The airline’s ability to forecast profitability after a prolonged period of losses, coupled with its leading market share in Hong Kong, positions it favorably for a resurgence. While there may be some short-term fluctuations, market analysts believe that Cathay’s earnings potential has been underestimated and expect the airline to deliver positive results. As the industry rebounds from the impact of the pandemic, Cathay Pacific is poised to reclaim its position as a dominant player.