"For airlines, overall solid passenger volumes are now being
boosted by a pick-up in premium travel," analysts at HSBC led
by Mark Webb, regional head of conglomerate and transport
research at the bank's Hong Kong office, said in a note on
Asian transport companies.
The analysts' top airline pick is Cathay Pacific, the
international flag carrier of Hong Kong, because "it has
greater leverage than Singapore Airlines to the stronger North
American market, faces less competition and has been better
able to control unit costs."
They have a target price of 18.25 Hong Kong dollars (HKD)
for the stock, from the current level of around 14.66 HKD.
The risks include higher fuel prices, slower-than-expected
growth in the global economy and a negative impact from a
stronger US dollar, as Cathay Pacific is "effectively an
exporter and short the USD."
The HSBC strategists' favorite pick in China is China
Southern Airlines, because "it has the strongest leverage to
domestic growth and RMB [reminbi] appreciation."
Their target price is 4.8 Hong Kong dollars (HKD) compared
with the current 3.92. The company's exposure to the Chinese
yuan is also its key weakness, as a bigger than expected
depreciation in the Chinese currency will likely have "the
largest negative impact" on China Southern Airlines, the
Kuala Lumpur- listed Air Asia, the leading low-cost carrier
in the region, is also among their favorites, with a price
target of 3.7 Malaysian ringgit (MYR) from the current
The HSCB strategists pointed to the fact that the company's
earnings are supported by a "large Malaysian domestic duopoly
business" and that it has access to other high-growth markets
through joint ventures as positives.
They cited a rise in competition, higher fuel prices, demand
slowdown and the negative impact of a strengthening US dollar
among the main risks.
Cebu Pacific is also a stock on which the HSBC analysts have
an "overweight" rating, with a price target of 100 Philippines
pesos (PHP) from the current 80.
Their other overweight airline stocks in Asia are: China
Airlines, with a price target of 14.6 HKD from the current
11.9, China Eastern Airlines, with a price target of 3.80 from
the current 2.86, Korean Air, with a target price of 67,000
South Korean won (KRW) from the current 37,000, and Tiger
Airways, with a target price of 0.80 Singapore dollars (SGD)
from 0.66 currently.
- Some of the companies mentioned in this article are HSBC
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