Loss-making Cathay Pacific Airways gambled for far too long and far too much on fuel hedging, as oil prices fell from their 2008 peak, says Dr Chek.
In a video on The Standard’s website and Facebook page, the investment expert also recommends buying into Baidu’s share sale in Hong Kong.
Dr Chek says hedging dragged down Cathay’s profitability between 2016 and 2019, pointing out that the airline’s hedging losses over those years were HK$8.4 billion, HK$6.3 billion, HK$1.4 billion and HK$0.1 billion respectively. Were it not for those losses, it would have made a profit of HK$7.9 billion, HK$5.1 billion, HK$3.7 billion and HK$1.7 billion for those four consecutive years.
Instead, it made a loss of HK$0.5 billion in 2016, a loss of HK$1.2 billion in 2017, and profit of HK$2.3 billion and HK$1.6 billion in 2018 and 2019, respectively.
He says that Cathay, which hedges up to 80 percent of its oil needs, should cut the ratio to as little as 20 percent, pointing out that several Chinese airlines don’t hedge oil prices at all.
Meanwhile, he expects Baidu’s share price to rise above its all-time high as it may be included by major share indices soon after its debut in Hong Kong, similar to other secondary-listed titans like JD.com (9618) and NetEase (9999).
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