Hong Kong's Cathay Pacific a 'buy' for short-term on possible B787 delay - UBS
HONG KONG (Thomson Financial) - UBS Investment Research said Wednesday it has rated Cathay Pacific Airways a short-term ""buy"" as Hong Kong's largest airline could benefit from a possible six-month delay in the introduction of the new Boeing 787.
Cathay Pacific is the only major Asian airline not to have ordered the new aircraft, and is likely to benefit if a delay in deliveries of the 787 makes tight supply in the global aviation industry even tighter, UBS said.
Boeing is making extensive use of composites in the construction of the aircraft, which is expected to reduce fuel consumption and maintenance, making it 20 percent cheaper to operate than other planes. But Boeing's heavily outsourced manufacturing process is encountering some teething problems, according to media reports in the US.
""We think a delay in 787 could refocus investors on the tight supply/demand situation in global aviation and propel Cathay above its recent trading range,"" said UBS analyst Damian Horth in a research note.
""Cathay is likely to be a key beneficiary of any delay because its growth plans won't be compromised.""
Of the estimated 35 deliveries of the Boeing 787 in 2008, many will be to Asian airlines such as All Nippon Airlines, Air China, China Southern and China Eastern.
The three Chinese carriers are slated to receive 10 aircraft in July and August 2008, in time for the peak in demand for travel during the Beijing Olympics, UBS said.
""While airlines can defer aircraft retirements, and are also likely to receive compensation from Boeing, this delay has the potential to crimp growth plans,"" said Horth.
UBS is keeping its 12-month ""neutral"" rating for Cathay shares, with a target price of 24.00 Hong Kong dollars.
Cathay stock was last down 45 cents or 2.1 percent at 21.40 dollars Wednesday as investors locked in profit after it rose around 6 percent on Tuesday.
Last month, Cathay shares gained sharply on hopes that the airline would team up with Air China to make a bid for China Eastern Airlines. The stock corrected after the company said it was backing out of the race for mainland airline.
Since the start of this year, Cathay has traded between 18 dollars and 22 dollars. It has gained 13 percent since the end of 2006, underperforming the Hang Seng Index, which has gained more than 39 percent.
""We think this reflects the difficult cargo market, high asset-based valuations and more recent concerns about global growth,"" said Horth.