(Bloomberg) -- Cathay Pacific Airways Ltd. was cut to a “strong sell” by the investment banking arm of China’s biggest lender, which said the fallout from the anti-Beijing protests in Hong Kong is set to hurt to the airline’s brand.
State-run Industrial & Commercial Bank of China Ltd. on Tuesday slapped a HK$6 price target on the stock, about a third less than where it currently trades and a level Cathay last traded at in 2001. Shares of Cathay, which tumbled to a 10-year low on Monday, extended their slide Tuesday.
Cathay has emerged as the most visible corporate target for China after some of its employees took part in the demonstrations that have gripped Hong Kong for more than two months. Cathay’s inability to prevent its staff from supporting the demonstrations prompted China’s civil aviation authority last week to order Hong Kong’s dominant airline to rectify the situation by meeting a swathe of demands -- to which Cathay said it would comply.
“On August 9, Cathay Pacific was warned by China’s Civil Aviation Administration about major safety risks due to its failure to suspend overly radical aircrew and intentional leakage of sensitive passenger information,” ICBC International Executive Director Zhao Dongchen, head of raw materials research, wrote Tuesday in a note to clients. The authority’s actions and Cathay’s “poor crisis management” will cause “irreversible damage” to its brand perception, the analyst wrote.
Aside from the civil aviation authority, a couple of Chinese state-run companies have told employees to avoid taking Cathay flights, people familiar with the matter have said.
Cathay’s image will be hurt in particular among mainland Chinese customers, who are important to company’s growth prospects, Zhao wrote. Meanwhile, upside risks include an acquisition by another airline and a “large-scale” management reshuffle, according to Zhao.
Zhao didn’t immediately respond to an email seeking comment. Cathay didn’t have an immediate comment.
What China Told Cathay |
|---|
| Cathay crew accused of being involved in acts such as assault haven’t been suspended from flying activities. Some employees also maliciously leaked passenger information, seriously threatening aviation safety and causing adverse social impact. |
| From Aug. 10, Cathay will suspend all those who participated in or supported illegal demonstrations from flying to the mainland or perform any official activities related to air transport on the mainland. |
| From Aug. 11, Cathay will submit for approval a manifest of all crew members flying to and across mainland China airspace. Otherwise, the relevant flights won’t be accepted by China authorities. |
| On Aug. 15, Cathay will submit plans on how management will improve flight safety and security to relevant authorities on mainland. |
| Source:Civil Aviation Administration of China |
Of the Cathay analysts tracked by Bloomberg, 13 recommend buying and 5 say hold. The last time one of them had a sell rating on Cathay was in January, according to data compiled by Bloomberg.
“Hong Kong’s image is not really good -- both the number of tourist and cargo transportation would fall in the future, which will hurt Cathay,” said Jackson Wong, an asset management director at Amber Hill Capital Ltd. in Hong Kong. “I wouldn’t say strong sell at the moment, but definitely there is no reason to buy the stock at the moment.”
Bocom International Holdings Co., a unit of another Chinese state-run bank, also cut its rating on Tuesday, citing near-term uncertainties.
The stock fell 2.6% to HK$9.55 in Hong Kong, its lowest close since April 2009. The airline’s parent, Swire Pacific Ltd., also dropped.
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