EM ASIA CREDIT: Cathay Pacific: H1 results out
(CATHAY, NR)
"*CATHAY PACIFIC 1H NET INCOME HK$3.65B, +1.1% Y/Y" - BBG
Lower passenger yields, future leverage up, negative for credit
Cathay Pacific reported H1 earnings with EBITDA down 2% year-on-year to HK$11.6bn, mainly impacted by lower passenger yields and a new Boeing aircraft order.
The company confirmed exercising its 2013 purchase rights to acquire 14 Boeing 777-9 aircraft, with an option for an additional 7. While the exact purchase price has not been disclosed, Cathay has indicated it secured substantial discounts off the approximate market price of around US$8.1bn (c. HK$63 billion).
The aircraft will be delivered through 2034, with pre-delivery and final payments expected to be financed via a combination of commercial bank loans, finance leases, sale and leaseback arrangements, and/or cash generated from operations. This suggests potential for additional $ bond issuance to support the financing package.
On the operational front, passenger services, which represent 69% of revenues, saw passenger revenue increase 14% YoY despite a 26% rise in available seat kilometres (ASK)—a measure of capacity—implying a 12% decline in passenger yields.
Credit metrics remained stable, with leverage (LTM net debt to EBITDA) steady at 2.3x versus FY24 levels, though the new aircraft orders are likely to put upward pressure on leverage and liquidity as deliveries commence.
Overall, while current credit metrics remain stable, the growing capital expenditures and financing requirements associated with the aircraft order should be monitored going forward.
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SWEDEN: Flash June Inflation In Focus With August Cut In The Balance
Swedish June flash inflation is due at 0700BST/0800CET. Although no details are provided in the flash release, markets will still be sensitive to the CPIF ex-energy reading given an August Riksbank cut remains in the balance. A string of weak growth data since the Riksbank’s dovish June 18 decision has weighed on the SEK, with EURSEK now trading above its 200DMA for the first time since February. Initial resistance, which will be in focus if inflation prints on the soft side, is 11.3203 (76.4% retracement of the March – April selloff).
- The Riksbank projected CPIF-ex energy at 2.86% Y/Y in the June MPR (vs 2.47% prior). The median analyst projection is now in line with this view (it was 3.0% Y/Y in Friday).
- The acceleration in underlying inflation compared to May is not expected to be a “concerning” one though: Higher prices on volatile airfares and package holidays (the latter of which has a much larger weight in the basket compared to 2024) are seen as the main drivers, alongside an unwind of temporary services softness in May.
- Unfortunately, the lack of detail in the flash won’t allow for any inspection of the underlying drivers until the final release on June 14th.
- Elsewhere, there is an expectations that core goods will be pulled lower by the start of summer sales, with the strong SEK also set to weigh on imported goods inflation.
- The acceleration of food inflation was a worry earlier this year, but leading indicators (e.g. PPI, business price plans) have rolled over in recent months.
EUROZONE ISSUANCE: EGB Supply: W/C 7 July (2/2)
- Germany will return to the market on Wednesday to hold a 15-year Bund auction. E1.5bln of the on-the-run long 15-year 2.60% May-41 Bund ISIN (DE000BU2F009) will be on offer alongside E1.0bln of the 2.50% Jul-44 Bund (ISIN: DE0001135481).
- Portugal will potentially come to the market on Wednesday with a combined E1.00-1.25bln of the long 6-year 0.30% Oct-31 OT (ISIN: PTOTEOOE0033) on offer alongside the off-the-run short 30-year 1.00% Apr-52 OT (ISIN: PTOTECOE0037).
- Italy will look to hold a 3/7/15+ year BTP auction on Friday with details to be confirmed tomorrow. We look for a launch of the new 3-year BTP maturing 15 January 2029 alongside a reopening of the on-the-run 7-year 3.25% Jul-32 BTP (ISIN: IT0005647265). We don’t have a strong view surrounding the 15+ year BTP that will be on offer.
NOMINAL FLOWS: This week sees E4.4bln of redemptions, most notably E3.5bln of a formerly 8- year EFSF bond and E0.8bln of a formerly 10-year CROATE. Coupon payments for the week total E0.5bln of which E0.3bln are from the EU and E0.2bln from the EFSF. This leaves estimated net flows for the week at positive E24.5bn, versus negative E29.9bln last week.
EUROZONE ISSUANCE: EGB Supply: W/C 7 July (1/2)
The EU is scheduled to hold a syndication this week with the Netherlands, Austria, Germany, Portugal and Italy looking to hold auctions. We pencil in estimated gross issuance for the week of E29.4bln, up from E25.3bln last week.
- The EU will kick off its H2 issuance this week with an EU-bond syndication. We look for at least one new non-green issue. The EU has pointed to new issues in H2 being focused on 5/7/15/30-year segments. We note that there was a 5-year new issue in July last year (alongside a 30-year tap) so think a 5-year launch is relatively likely here. If it is part of a dual-tranche syndication, a 15-year launch since June last year (and that is now around terminal size) so we would favour that as the most likely. However, there is also a decent chance that we get 30-year, although our base case is that comes later in the year.
- Netherlands will come to the market tomorrow, looking to sell E1.75-2.25bln of the 3.25% Jan-44 Green DSL (ISIN: NL0015001RG8).
- Austria will also hold an RAGB auction tomorrow. On offer will be a combined E1.725bln of the on-the-run 10-year 2.95% Feb-35 RAGB (ISIN: AT0000A3HU25) and the 15-year 0% Oct-40 RAGB (ISIN: AT0000A2KQ43).
- Germany, also tomorrow, will hold a E5bln auction to launch the new Oct-30 Bobl ISIN (DE000BU25059) on offer. We note that in its recent Q3 issuance plan the DFA decided not to increase the size of any Bobl auctions. The coupon will be confirmed this morning.
