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Cathay Pacific's Recovery Spurs Stock Upgrades by UBS, JPMorgan

Cathay Pacific's Recovery Spurs Stock Upgrades by UBS, JPMorgan

(Bloomberg) -- Rupert Hogg’s efforts to contain Cathay Pacific Airways Ltd.’s costs and revive earnings are winning some analysts over.

After Asia’s biggest international carrier said Wednesday it is pleased with the progress of its three-year transformation and losses are narrowing, UBS Group AG and JPMorgan Chase & Co. were among brokerages that raised their recommendations on the stock. It now has more ‘buy’ ratings than ‘sell’ for the first time since mid-2016, according to data compiled by Bloomberg.

Cathay Pacific's Recovery Spurs Stock Upgrades by UBS, JPMorgan

The Hong Kong-based airline, which reported a surprise profit for the second half of 2017, said a pick-up in freight and business travel demand is encouraging, with trends in passenger and cargo yields providing cause for optimism. The less-than-expected full-year loss came as a respite for a company that has been fending off competition from mainland Chinese carriers and low-cost operators.

Shares of the company jumped as much as 7.6 percent Thursday in Hong Kong, the biggest intraday gain in nine months, after the stock upgrades.

Cathay is “becoming brighter through the dark clouds,” Andrew Lee, an analyst at Jefferies Hong Kong Ltd., wrote in a note Thursday. “With passenger yields improving and management noting this trend continuing this year, we estimate earnings bottomed.” Lee raised the airline’s target price to HK$16.50 from HK$13.80 and maintained a buy recommendation.

Hogg, who took over as chief executive officer about 10 months ago, has been leading Cathay’s revamp, which included cutting 600 jobs and salary freezes for senior managers. The company is on track to cut costs by HK$4 billion ($510 million) as part of the transformation, Chairman John Slosar said in January.

“The world economy has been strong and that always generates demand for travel, be it tourism or business travel,” Hogg said in an interview with Bloomberg Television’s Yvonne Man and Betty Liu on Thursday. “There’s been much more demand in the premium cabin. I think it’s sustainable. If you take the two-year journey, we see yields improving.”

--With assistance from Karolina Miziolek

To contact the reporter on this story: Kyunghee Park in Singapore at kpark3@bloomberg.net.

To contact the editors responsible for this story: Sam Nagarajan at samnagarajan@bloomberg.net, Will Davies

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