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Hang Seng Index

After 31 years, Cathay Pacific loses blue-chip status in Hong Kong

Carrier currently has smallest market cap among Hang Seng Index constituents

PUBLISHED : Friday, 10 November, 2017, 7:05pm
UPDATED : Friday, 10 November, 2017, 11:15pm

Cathay Pacific, Hong Kong’s flagship carrier, will lose its status as a component of the city’s benchmark Hang Seng Index effective December 4, the Hang Seng Indexes Company said on Friday.

Cathay joined the index in June 1986, a month after its debut on the Hong Kong stock exchange.

At close on Friday, Cathay’s stock stood at HK$12.34 (US$1.6), down about 50 per cent from its peak of HK$24.1 in 2010. Its market cap of HK$48.5 billion is currently the smallest among the 50 constituents of the Hang Seng Index.

“The loss of blue-chip status is not a total surprise. Cathay’s market cap is low among the index constituents and its financial performance and growth outlook have also disappointed investors.

For investors, there are other better performing airline stocks in the market, such as mainland airlines,” said Ronald Wan, chief executive of investment consultancy Partners Capital.

In May, the carrier was also removed from MSCI’s benchmark Hong Kong index by the global index compiler.

The full-service carrier has been facing increased competition from rivals based on the mainland and in the Middle East, with these flying to the same long-haul destinations, as well as budget airlines muscling in on regional flights.

In August, Cathay posted its worst half-year results in at least two decades, a loss of HK$2.05 billion, almost doubling the estimated HK$1.2 billion loss forecast by analysts. The company blamed the result on fierce competition and higher jet fuel costs, including losses from fuel hedging.

John Slosar, the chairman of Cathay, also said the company did not expect the operating environment to “improve materially” in the second half.

Last week, the carrier dropped to No. 9 among the world’s top 10 airlines for 2017, compared with No. 4 a year ago, according to an annual assessment of global carriers by Airlineratings.com.

Also removed from the index on Friday was Kunlun Energy, the national gas distribution arm of PetroChina, after being a constituent for five years.

On Friday, Kunlun Energy closed at HK$7.12, with a market value of HK$57.5 billion.

The companies are being replaced by Chinese real estate developer Country Garden and smartphone camera lens maker Sunny Optical Technology (Group), the index compiler said.

The changes will be effective December 4.

Country Garden’s stock price has soared by more than 180 per cent this year, and has a current market cap of HK$261.5 billion.

Shares of Sunny Optical Technology (Group) rose more than 300 per cent this year, and has a market value of HK$154.2 billion.

To be eligible to be a Hang Seng Index component, a stock should normally have a listing history of 24 months on the Hong Kong stock exchange and must be among the companies that constituent the top 90 percentile of the total market cap of Hong Kong’s stock universe, based on the average figure of market caps in the past 12 months.

It also needs be among companies that constituent the top 90 percentile of the total turnover of the stock universe.

The turnover is aggregated and individually assessed for eight quarterly sub-periods over the past 24 months.

Cathay’s stock turnover for the third quarter this year was HK$4.2 billion, down 39 per cent from the previous quarter. Kunlun Energy’s quarterly turnover was HK$6.7 billion during the same period, up 19 per cent from the April-to-June period.

Meantime, Country Garden’s turnover for the July-to-September period reached HK$36.5 billion, up 70 per cent from the previous quarter. Sunny Optical Technology (Group) had HK$51.7 billion worth of shares changing hands in the third quarter, up 100 per cent on a quarterly basis.

With additional reporting by Karen Yeung and Danny Lee

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