Cathay Pacific shares jump on broker upgrade and Qantas profit forecast slashed by UBS

Cathay Pacific shares jumped 6.2% yesterday, going against the 0.7% drop on the Hong Kong Hang Seng Index. JP Morgan raised the rating for the carrier’s stock from "underweight" to "overweight” on expectations the airline's earnings outlook would improve.

The broker increased its target price from HKD7 to HKD13, saying Asia's third-largest airline would outperform peers with a marginal profit in 2009, aided by its improved average load factor, cost-cutting measures (including capacity rationalisation) and mark-to-market fuel hedging gains.

Also gaining on Tuesday was Qantas, whose shares rose 0.8%. RBS stated it expects Qantas’ FY2009-10 pre tax profit to fall by almost 40% to AUD172 million and net profit to improve only marginally from 2008/09 levels (+1.9% to AUD85 million), due to the devastating combination of a weak pricing and demand environment and generally increasing oil prices (although oil prices have now fallen for five consecutive days).

RBS also downgraded the carrier’s pre-tax profit for FY2011 by 26.6% to AUD280 million and forecast yield to continue to weaken in FY2010, falling 2.4% domestically and 9% on international services. RBS also lowered Qantas share target price from AUD1.70/share to AUD1.66/share, on expectations of continued market weakness. Qantas shares closed at AUD1.89 yesterday, and have fallen marginally in morning trading today.

Elsewhere, Singapore Airlines gained 1.6% yesterday, while shares in Japan Airlines were down 0.6%.

Asia Pacific selected airlines daily share price movements (% change): 07-Jul-09