Cathay Pacific

Stock code: 0293.HK

Last close: HK$14.16

Entry: HK$14

Target: HK$16

Stop loss: HK$13.40

By Castor Pang

Cathay Pacific recorded a loss of HK$663 million during the first half of this year.

Its core business saw significant growth, but the company was dragged deep into the red by surging oil prices. The company has also made provisions for a substantial fine after it was found to have engaged in price-fixing practices in the US. Cathay's stock price dropped significantly yesterday, at one point dipping to a low of HK$13.88.

Global oil prices have remained high in recent days, and although they're expected to fall, any decline is expected to be slow and ultimately unlikely to drive a quick rebound in the stock's price.

However, in terms of the short-term future, the stock broke its downward trend in April, and it may rebound to around the HK$14 mark.

Investors are advised to enter at HK$14 and speculate on a rally. Its short-term resistance lies at HK$16, and It is wise to sell when it dips below HK$13.40.

The author is a strategist with Sun Hung Kai Financial Group.

Hainan Meilan

International Airport

Stock code: 0357.HK

Last close: HK$6.20

By Cho Fook Tat

Although the general de-rating of mainland airport stocks led to the trimming of our target price on Hainan Meilan International Airport (HMIA) from HK$15 to HK$12.70, which represents a forward PE of 26 times and PB of 3.2 times, we maintain our "buy" call on the counter, in view of its solid profit growth potential and the speculative appeal of its possible acquisition of Sanya Phoenix International Airport (SPIA).

The tax authority has deferred HMIA's tax-free period from 2000-04 to 2004-08, and accordingly a postponement of the subsequent 5-year 50 percent reduction of profit tax from 2005-09 to 2009-13.

Although HMIA suffered a quadruple increase in its FY07 profit tax expense to 40 million yuan, as it needs to settle the tax underpayment for previous years, the change in tax arrangement allows the company to enjoy a lower tax rate of 0 percent, 10 percent, 11 percent, 12 percent, 12.5 percent and 12.5 percent during FY08-13.

The growth of passenger throughput, commercial flight and cargo volume handled at Haikou Meilan International Airport further accelerated to 23 percent, 17 percent and 23 percent to 4.41 million, 33,700 movements and 74,000 tons in the first quarter of this year, compared with respective growth rates of 9 percent, 5 percent and 14 percent in FY07.

The exemption of profit tax would also act as an additional earnings growth driver for FY08, where we estimate a 48 percent jump in HMIA's bottomline to 206 million yuan (EPS: 0.44 yuan).

An affiliated company(ies) of Taifook Research Limited make(s) a market in the securities herein covered and/or any warrants or options on these securities herein covered.

The author is an analyst with Taifook Securities.

(HK Edition 08/08/2008 page6)