Bank of China (Hong Kong) Merrill Lynch has upgraded its rating on the bank from 'neutral' to 'buy' on an attractive prospective dividend yield. Analysts Alistair Scarff and Keith Irving said Bank of China offered a prospective dividend yield similar to Hang Seng Bank at about 6.3 per cent, yet Bank of China's valuation was less than half that of Hang Seng Bank. They estimated Bank of China was trading at 1.4 times its book value and Hang Seng Bank at four times. 'Although Bank of China's risk profile is clearly not as strong as Hang Seng Bank, we believe the valuation discount is nevertheless too steep.' They said Bank of China had the scope to offset any impact from falling property prices with general provision releases, and set a target price of HK$8.50 for the counter. Cathay Pacific Airways Daiwa Institute of Research has reiterated its 'five' or underperform rating on the airline saying the savings made from its recent dividend cut would help it 'survive this period of difficulty'. Analyst Ann Lim said Cathay would save $934 million after it halved its dividend to 28 cents a share. She estimated Cathay was operating at a load factor of about 35 per cent for the past month and expected that to continue for the next three months despite a 45 per cent reduction in capacity. 'Visibility remains very limited. Cathay will miss this year's summer peak. We forecast an 83 per cent decline in full-year earnings, and we think the recent share price rally unwarranted,' Ms Lim said. She has a target price of $7.70 for Cathay.
