Cathay Pacific Target Price HK$17.50 Sell by CLSA

CLSA keeps Cathay Pacific (Hong Kong stock code 0293) at Sell with a target price of HK$17.50; it says Cathay’s March operating data confirmed its expectations that both the passenger and cargo markets are in decline as capacity is increasing. With load factors in decline after a record year in 2010 combined with higher fuel costs, the house forecasts the airline’s EBIT margins to decline to 7.7% in 2011 from 12.8% in 2010; it adds that to achieve these forecasts, it needs traffic to accelerate in 2H, so risk is “still to the downside” and the house’s forecasts are below consensus.