Cathay Pacific: First-Half Turnaround and Plan To Redeem Preference Shares Should Boost Confidence

No-moat Cathay Pacific’s turnaround in the first half is expected, but the plan to fully redeem the HKD 19.5 billion preference shares over the next 12 months is ahead of our forecast for a full redemption by 2025. The preliminary net income guidance ranges from HKD 4 billion to HKD 4.5 billion, translating to HKD 2.1 billion-HKD 2.6 billion in recurring net income after excluding an HKD 1.9 billion one-off disposal gain. We keep our full-year net income forecast at HKD 6.7 billion ahead of its interim results release in August. Our fair value estimate remains HKD 8.90. The shares closed 4% below our fair value estimate on July 14 and we think the shares are fairly valued.