Lowering Our Cathay Pacific 2022 Earnings Estimate on Capacity Reduction; Maintaining HKD 7 FVE

We have reduced our 2022 earnings estimate for Cathay Pacific following the announced passenger and cargo capacity reduction until January end. While the current capacity reduction plan is temporary, we think chances are high that capacity recovery will be delayed. As such, we have reduced our 2022 capacity assumptions for both passenger and cargo. Our capacity estimate for 2023 and beyond is unchanged. After factoring in a higher in-house jet fuel cost forecast for 2022 and 2023, we now expect Cathay to see a HKD 3.8 billion loss in 2022 and HKD 0.4 billion profit in 2023, down from HKD 1.5 billion and HKD 4.1 billion profit in our original estimate, respectively. We are keeping our fair value estimate at HKD 7 per share as our long-term view is unchanged. The shares are trading at about a 9% discount to our fair value estimate, but we suggest investors wait for a more attractive entry point.