Ronald Lam Predicts Air China Will Remain a Long-term Strategic Investor in Cathay Pacific, Views Share Reduction as a Tactical Decision Only

The analyst rating from JPMorgan is influenced by several factors: 1. Market Underperformance: The Hong Kong and China aviation sectors have underperformed the market year-to-date due to cost pressures, intensified competition, and weak pricing power, which have negatively impacted profits. 2. Limited Impact of Regulatory Actions: The broker believes that the impact of anti-involution and related regulatory actions is limited, as these initiatives are currently not effective in materially improving pricing levels. 3. Flattish Price Forecast: JPMorgan maintains a forecast of flattish prices from 2025 to 2027, attributing this to ongoing demand dilution from High Speed Rail and a weak economy. 4. Optimism for Specific Stocks: The broker is most optimistic about SPRING AIRLINES and CHINA EAST AIR due to their positioning to benefit from a recovery in inland tourism, particularly following CHINA EAST AIR's divestment of its cargo business to focus on passenger transport. 5. Target Price Adjustments: JPMorgan upgraded CATHAY PAC AIR to Neutral based on its attractive valuation and dividend yield, while also upgrading CHINA EAST AIR's A-shares to Overweight and increasing its target price. SPRING AIRLINES was also rated Overweight with a target price increase. Overall, the ratings reflect a cautious outlook on the aviation sector while identifying specific stocks that are better positioned for recovery.