Cathay Pacific Airways: A Cash Call Was Inevitable - Seeking Alpha

Elevator Pitch

I maintain my Neutral rating on Hong Kong’s largest airline company Cathay Pacific Airways Limited (OTCPK:CPCAY) (OTCPK:CPCAF) [293:HK].

This is an update of my April 9, 2020, initiation article on Cathay Pacific. Cathay Pacific’s share price has declined by -10% from HK$8.61 as of April 8, 2020, to HK$7.74 as of June 24, 2020, since my initiation.

Cathay Pacific announced a HK$39 billion recapitalization plan in June, and this was inevitable considering the company’s refinancing needs. Cathay Pacific’s credit risks are expected to ease post-recapitalization, but the company’s operating environment remains challenging. Also, Cathay Pacific’s pro-forma 0.71 times P/NTA is not cheap as it seems, given continued losses and potential aircraft impairments which suggest a much lower forward NTA.

Readers have the option of trading in Cathay Pacific shares listed either on the Over-The-Counter Bulletin Board/OTCBB as ADRs with the tickers CPCAY and CPCAF, or on the Hong Kong Stock Exchange with the ticker 293:HK. For those shares listed as ADRs on the OTCBB, note that liquidity is low and bid/ask spreads are wide.

For those shares listed in Hong Kong, there are limited risks associated with buying or selling the shares in terms of trade execution, given that the Hong Kong Stock Exchange is one of the major stock exchanges that is internationally recognized, and there is sufficient trading liquidity. Average daily trading value for the past three months exceeds $5 million, and market capitalization is above $3.9 billion, which is comparable to the majority of stocks traded on the US stock exchanges. Institutional investors which own Cathay Pacific shares listed in Hong Kong include The Vanguard Group, Norges Bank Investment Management, PineBridge