UOB Kay Hian
Date of Report: Thursday, 07 August 2025
Cathay Pacific Airways Faces Headwinds: 1H25 Results, Cargo Uncertainty, and Downgrade to Sell
Overview: Cathay Pacific’s 1H25 Performance and Analyst Outlook
Cathay Pacific Airways, a leading premium travel lifestyle brand headquartered in Hong Kong, recently reported its first-half 2025 (1H25) results. The company posted a core net profit of HK\$3.65 billion, an 11.9% increase year-over-year, which aligns with analyst estimates and represents 40.5% of the full-year forecast. Despite this solid performance, UOB Kay Hian has downgraded the stock to SELL, citing a lack of re-rating catalysts, moderating passenger and cargo yields, and valuation concerns.
- Share Price: HK\$10.85
- Target Price: HK\$10.23 (down from HK\$10.20)
- Upside: -5.7%
- Market Cap: HK\$69.87 billion
- Major Shareholders: Swire Pacific (45%), Air China (30%)
Key Financial Highlights: 1H25 Results in Detail
| Metric |
1H25 |
1H24 |
YoY % Change |
2H24 |
HoH % Change |
2025F |
1H as % of 2025F |
| Revenue (HK\$b) |
54.3 |
49.6 |
+9.5 |
54.8 |
-0.8 |
114.7 |
47.3% |
| Pax services |
37.2 |
33.0 |
+12.7 |
35.6 |
+4.6 |
80.0 |
46.5% |
| Cargo services |
12.8 |
12.6 |
+1.2 |
14.8 |
-13.8 |
26.0 |
49.0% |
| Non-fuel opex |
-33.7 |
-29.5 |
+14.2 |
-33.4 |
+1.0 |
-72.6 |
46.5% |
| Fuel cost |
-14.7 |
-14.2 |
+3.5 |
-14.1 |
+3.9 |
-29.6 |
49.4% |
| Core operating profit |
5.9 |
5.9 |
+0.3 |
7.3 |
-18.5 |
12.5 |
47.5% |
| Net profit (reported) |
3.7 |
3.4 |
+8.3 |
6.2 |
-41.4 |
9.0 |
40.5% |
| Core net profit |
3.7 |
3.3 |
+11.9 |
5.6 |
-34.7 |
9.0 |
40.5% |
- Core operating profit margin (1H25): 10.9%
- Core net profit margin (1H25): 6.7%
Revenue Growth and Yield Trends
- Group revenue increased 9.5% year-over-year to HK\$54.3 billion, with broad-based growth in passenger (+12.7%), cargo (+1.2%), and other services (+8.7%).
- Yield moderation was seen across both passenger and cargo operations:
- Full-service carrier (FSC) passenger yields dropped 12.3% year-over-year to HK\$0.604, a steeper decline than the projected 9.2% for the full year.
- Low-cost carrier (LCC) HK Express saw passenger yields fall 21.6% year-over-year to HK\$0.467 due to fare normalization in regional markets.
- Cargo yield declined 3.4% year-over-year to HK\$2.59, a slower drop than expected due to preemptive cargo movements ahead of US de minimis tax changes and potential tariff hikes.
HK Express: Widening Losses Amid Expansion
- HK Express, Cathay’s LCC, reported pre-tax losses of HK\$524 million in 1H25, widening from HK\$66 million in 1H24.
- Losses were attributed to a shift in customer preference away from key destinations like Japan (due to earthquake rumors) and the launch of new routes needing time to mature.
Dividend Announcement
- Cathay maintained its interim dividend at 20 HK cents per share for 1H25, unchanged year-over-year. Ex-dividend date is set for 3 September 2025.
Stock Impact and Future Outlook
- Passenger Yield Pressure: Cathay’s FSC passenger yield in 1H25 was at 110% of pre-pandemic levels, but further moderation is expected in 2H25 due to growing capacity and normalization on less lucrative routes. The company projects a high-single-digit percentage drop in FSC passenger yields for 2H25.
- Cargo Uncertainty: Air cargo faces heightened uncertainty in 2H25 as front-loading effects fade and the US moves to a higher tariff regime. This is likely to suppress global cargo volume and freight rates, with Cathay projecting a mid-teen percentage year-over-year drop in cargo yields.
- Earnings Peak and Decline: While 2H25 earnings are expected to be stronger seasonally, Cathay is forecast to post a 5% year-over-year drop, with core net profit peaking in 2025 (HK\$9.0 billion) before moderating to HK\$6.6 billion in 2027, a 26% decline from 2025 levels.
Strategic Developments: Boeing 777-9 Orders
- Cathay exercised rights to purchase 14 new Boeing 777-9 aircraft and secured the option for up to 7 more, with a total consideration of US\$8.1 billion (HK\$63.2 billion) at list prices (actual prices are usually much lower due to concessions).
- The aircraft are scheduled for delivery by 2034 and will be financed through internal resources and external borrowings.
Valuation and Recommendation: Downgrade to SELL
- Valuation: Cathay currently trades at 1.25x price-to-book (P/B), 1.3 standard deviations above its historical mean of 0.95x.
- Target Price: Revised to HK\$10.23, based on 1.18x 2025F P/B, pegged to 1 standard deviation above historical mean.
- Reasons for Downgrade:
- Lack of re-rating catalysts amid a forecasted moderating earnings trend starting 2H25
- Uncertain global trade outlook, posing further downside risks to air cargo
- Valuation not considered cheap
Key Financial Estimates and Metrics
| Year to 31 Dec (HK\$m) |
2024 |
2025F |
2026F |
2027F |
| Net turnover |
104,371 |
111,589 |
114,892 |
119,434 |
| EBITDA |
25,236 |
24,836 |
22,831 |
22,820 |
| Operating profit |
13,177 |
12,601 |
9,622 |
8,701 |
| Net profit (reported) |
9,607 |
8,973 |
7,221 |
6,613 |
| Net profit (adj.) |
8,856 |
8,973 |
7,221 |
6,613 |
| EPS (HK\$ cents) |
137.6 |
139.3 |
112.1 |
102.7 |
| PE (x) |
7.9 |
7.8 |
9.7 |
10.6 |
| P/B (x) |
1.3 |
1.3 |
1.2 |
1.1 |
| EV/EBITDA (x) |
4.2 |
4.4 |
4.8 |
4.8 |
| Dividend yield (%) |
6.4 |
6.4 |
5.2 |
4.7 |
| Net margin (%) |
9.2 |
8.0 |
6.3 |
5.5 |
| Net debt/(cash) to equity (%) |
90.6 |
83.2 |
75.2 |
69.6 |
| ROE (%) |
17.1 |
16.6 |
12.5 |
10.9 |
Risk Factors
- Macroeconomic weakness could dampen air travel demand.
- US tariff policies may negatively impact air cargo volume.
- Unfavorable fluctuations in jet fuel prices present additional risk.
Valuation Reference Table
| P/B Peg |
FY24 Target Price (HK\$) |
FY25F Target Price (HK\$) |
FY26F Target Price (HK\$) |
| +2.0SD (1.41x) |
11.36 |
12.23 |
12.98 |
| +1.5SD (1.30x) |
10.43 |
11.23 |
11.92 |
| +1.0SD (1.18x) |
9.50 |
10.23 |
10.87 |
| +0.5SD (1.07x) |
8.58 |
9.24 |
9.81 |
| Mean (0.95x) |
7.65 |
8.24 |
8.75 |
Conclusion: Challenges Ahead for Cathay Pacific
Despite delivering a solid set of 1H25 results, Cathay Pacific faces a challenging outlook for the remainder of 2025 and beyond. Yield moderation in both passenger and cargo segments, uncertain trade policies, and limited catalysts for further re-rating have prompted a downgrade to SELL. Investors should remain cautious as the airline navigates an increasingly competitive and volatile environment, with earnings expected to moderate in the coming years.
Disclosures and disclaimers apply. Please consult your financial adviser before making investment decisions.
