Upgrades and downgrades
Cathay Pacific Airways ING Financial Markets has downgraded to 'hold' its rating for the carrier, as it believes the rapid recovery in passenger traffic and the expected rebound in passenger yield are reflected in the share price. Analyst Philip Wickham said the post-Sars recovery had been discounted at the larger airlines, such as Cathay and he preferred airlines with the potential to positively change their operating environment. They include Eva Air, which will benefit from direct air links between the mainland and Taiwan, or China Southern Airlines, which is expected to gain from liberalisation initiatives and industry consolidation. Mr Wickham said Cathay had no positive developments on the horizon. He said that despite the airline resuming Beijing-Hong Kong flights in the fourth quarter, the development of meaningful revenues from those routes remained unlikely to next year due to restrictions. He maintains a $12.75 target price. It closed yesterday at $13.50.
China Unicom DBS Vickers Securities has maintained its 'sell' rating on the telecommunications firm because its share price remains unattractively valued. Analyst Wallace Cheung said competition in the mobile and fixed-line markets was intensifying, which would squeeze China Unicom's average revenue per user. He said earnings visibility was low 'amid potential provisions on CDMA (code division multiple access) handset subsidies, an uncertain effective tax rate and a flagging paging operation'. In view of this Mr Cheung said its valuation looked expensive at 14 times next year's expected earnings. It closed yesterday at $5.55.
China Eastern Airlines announced first-half results where it lost 1.25 billion yuan. It was incorrectly reported in this column yesterday.