Cathay Pacific Earnings: Steady Recovery; Fair Value Estimate Up by 3%; Shares Attractive

Cathay Pacific's first-half 2024 adjusted net profit before preference dividend and one-off items increased by 64% year on year thanks to higher passenger and cargo traffic. Headline 15% year-on-year decrease in net income reflected the absence of a one-off disposal gain that boosted the prior-year bottom line. Operating margin contracted by 3 percentage points to 12% due to passenger yield normalizing but was still higher than our 10% forecast for 2024. The better-than-expected margin was attributable to positive operating leverage as reflected by a 9.4% decline in underlying non-fuel cost per available metric ton kilometer. We increase our net income forecast by 23% to HKD 6.9 billion for 2024 and by 17% for 2025 after raising our cargo yield assumption for 2024 and 2025. As we still see intensifying competition, our profit forecasts post 2025 are largely unchanged. The impact is a slight rise in our fair value estimate to HKD 9.30 from HKD 9.00. We think the shares are attractive, with 19% upside to our fair value estimate.