UBS: Raises CATHAY PAC AIR (00293) target price by 3.6% to HK$20.1, maintains "Buy" rating

UBS issued a research report stating that it has raised the target price for CATHAY PAC AIR (00293) by 3.6%, from HK$19.4 to HK$20.1, while maintaining a "Buy" rating. Although the bank cut its 2026 earnings per share forecast for CATHAY PAC AIR by 5% due to higher fuel price assumptions, its forecast remains 14% above market consensus. The bank expects CATHAY PAC AIR to achieve solid profit growth in 2026, with net profit potentially reaching HK$13.3 billion, up 22% year on year. In addition, based on more optimistic yield assumptions, the bank raised its 2027-2028 earnings per share forecasts by 2% to 11%. The bank expects CATHAY PAC AIR's return on equity (ROE) to reach 22% in 2026-2028, compared with an average of 4.2% during 2011-2019. UBS believes that although CATHAY PAC AIR's recent share price weakness reflects market concerns over fuel costs, the market is underestimating the durability of its ROE performance. Over the past three years, CATHAY PAC AIR has consistently maintained an ROE of 19%. Its first-half 2026 results also confirmed the company's pricing power in both passenger and cargo businesses, with core profit still up 45% year on year amid the current high fuel price environment. The bank noted that the aviation industry is generally regarded as asset-intensive, highly cyclical and vulnerable to oil price fluctuations, but seven long-term drivers will support CATHAY PAC AIR in achieving more durable and sustainable ROE performance. In addition, despite CATHAY PAC AIR's plan to invest HK$150 billion in capital expenditure over the next decade, UBS believes its equity financing risk is limited, as free cash flow is sufficient to cover investment needs and support a 50% dividend payout ratio.