UBS: Raises target price of CATHAY PAC AIR (00293) to HK$16.9, reiterates "buy" rating.

UBS released a research report stating that the target price of CATHAY PAC AIR (00293) has been raised by 13.4%, from HK$14.9 to HK$16.9, and maintains a "buy" rating. At the same time, UBS reaffirmed that Cathay Pacific is one of the most preferred airlines in the Asia-Pacific region. UBS raised its profit forecast for CATHAY PAC AIR for the years 2026-2028 by 8-23%, mainly considering the lack of elasticity in airline flight demand during the Middle East conflict, with good profit margins after the conflict. The bank stated that ticket prices are likely to remain above pre-conflict levels, mainly due to the lack of demand elasticity; airlines retiring old aircraft at a faster pace, tightening flight supply in the industry; and the market share gained by Gulf airlines on European routes (although the impact is small). Therefore, UBS believes that the return on equity (ROE) can be maintained at a high level, with an estimated ROE for CATHAY PAC AIR reaching 21% in 2026-2027. UBS stated that CATHAY PAC AIR expects to announce its financial results for the first half of 2026 in August. Despite a significant increase in fuel prices, UBS expects profits to remain robust, benefiting from the strong passenger trends brought about by the low elasticity of flight demand and the steady performance of the cargo business. In addition, as Air China Limited (00753) completed its A-share issuance on June 9, 2026, leading to a dilution of the group's equity in Air China Limited from 15.09% to 12.85%, the company will record a one-time non-operating income of HK$1.4 billion in the first half of 2026. In terms of profits, UBS expects a half-year net profit of HK$5.2 billion, a 41% increase year-over-year; recurring net profit (excluding one-time non-operating income) is expected to be HK$3.8 billion, a slight increase of 3%. The issuance of convertible bonds by Taikoo A (00019) has put pressure on the stock price performance of CATHAY PAC AIR, but UBS believes that this masks its fundamental strengths.