Cathay buyback reflects confidence but will tighten liquidity, analysts say

Cathay Pacific Airways’ (0293) plan to repurchase Qatar Airways’ entire 9.57 percent stake for HK$6.97 billion signals confidence in its outlook, though it may strain short-term liquidity, analysts said.

Kenny Ng Lai-yin, securities strategist at Everbright Securities International, said Cathay’s willingness to buy back shares at a price close to the current market level “shows the company’s relative confidence in its prospects.”

“From Qatar Airways’ perspective, since it intends to exit, different disposal methods could have varying impacts on Cathay’s share price,” Ng said. “If the shares were sold on the open market instead, it could have led to greater volatility. The buyback arrangement should therefore help stabilize the stock.”

Ng noted that Qatar Airways bought its Cathay stake for about HK$5.1 billion in 2017 and will sell for roughly HK$7 billion, “a gain of nearly HK$2 billion — a decent transaction for them.”

He added that while Cathay holds around HK$8.9 billion in cash as of mid-year, spending nearly HK$7 billion on the repurchase “will significantly reduce its liquidity.” The impact on leverage would be limited, but the carrier’s cash position “will become less comfortable,” he said.

Ng also pointed out that the shares are being repurchased as treasury stock rather than cancelled, meaning the transaction “is unlikely to immediately lift earnings per share.”

“The limited discount to the last closing price reflects Cathay’s positive view of itself,” Ng said. “But the company’s future share performance will hinge more on the industry recovery, new routes and capacity growth, rather than the buyback itself.”

He said Cathay’s passenger recovery has been progressing well and should benefit from lower fuel costs and the continued rebound in travel demand.

A note from CLSA said the announcement “appears net negative,” citing the lack of plans to cancel the repurchased shares despite the 4 percent discount to the last close.

The Hong Kong carrier announced the repurchase plans on Wednesday night, pending approval from independent shareholders.

Its shares gained 4 percent to HK$11.73 in Hong Kong on Thursday.

CICI CAO AND RAINE FUNG