Cathay Pacific forecast to take off

WHEN Cathay Pacific Airways showcased its full-year figures last week its shares took an unexpected drubbing despite having turned in slightly better numbers than expected.

Stock in Hong Kong's de facto flag-carrier did better today, riding the slipsteam of ebbing terror fears and encouraged by Wall Street's gains.

The Fed standing still on interest rates helped sentiment too, and Cathay Pacific shares put on 45 cents or 2.9% to HK$16. Many analysts, including Smith Barney, reckon that even better times lie ahead for the airline.

The investment bank's case for a robust buy recommendation lies in forecasts of better yields, rising demand, a tight lid on costs and high hopes for the extension of its routes, particularly in China.

Smith Barney told clients: 'Apart from expanding its mainland China network, Cathay has just announced details of a new daily non-stop flight to New York, which will commence service on 1 July. The airline is also ambitiously exploring new opportunities in the Middle East and in India.'

Cathay has made an impressive rebound from the dark days of Sars last year, when its shares plummeted to HK$8.25.

Backed by its positive analysis, Smith Barney forecasts that the stock now has the potential to strike HK$22. That is upside of about a quarter from its pre-results price target of HK17.50, and a 37% jump from today's levels.

There are, as always, risks. Like other listed carriers, Cathay Pacific remains vulnerable to the threat posed by terrorist activity in its major markets. Last week's Madrid train bombings knocked Cathay and its rivals hard.

Then there is oil, which Smith Barney described as a key uncertainty. 'Cathay is only about 30% hedged for its jet fuel requirements in 2004, and it does not have any oil hedging for 2005 and 2006. Cathay is [indicating that] it does not expect much change to the current oil price in 2004-2005,' it said.

The rest of Hong Kong's blue-chip market was mixed. Bargain hunters went shopping for banks and exporters after recent steep losses, global lender HSBC up by 87 cents or 0.7% to HK$118.50. Esprit, the fashion retailer, added 20 cents or 0.6% to HK$32.10 and Yue Yuen Industrial, which makes branded sports shoes, rose by five cents or 0.2% to HK$23.30.

The Hang Seng index traded at 12,948.83, up by 16.21 points or 0.1%. Conglomerate Hutchison Whampoa was clipped by 25 cents or 0.4% to HK$58.50 ahead of results tomorrow.

In Japan, shares romped ahead, fund managers and other investors happy to take a bullish cue from Wall Street. The buying was widespread, banks and exporters in particular notching up gains.

Giant lender Mizuho Financial climbed 6,000 yen or 1.5% to 415,000, while Sony picked up 80 yen or 1.9% to 4,350.

All Nippon Airways, buffeted by the fallout from Madrid, recouped some lost ground by rising seven yen or 2% to 358. The Nikkei 225 rose by 194.57 points to close at at 11,436.86.

Taiwan's market was suffering from jitters about the Presidential poll at the weekend that could sour the island's relations with Beijing.

The Taiwan Weighted index lost 11.74 points at 6577.98 despite an earlier rise led by tech counters.

Heartened by a mild rise in the Nasdaq, contract chipmaker United Microelectronics put on 1.6% to T$31.30.