Korean and Asiana, Cathay and others are undervalued due to MERS – Thai authorities do not have a leg to stand on and CALC shares still falling.

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By TESTCustomwebLP TESTCustomwebLP June 22, 2015 15:30

Korean and Asiana, Cathay and others are undervalued due to MERS – Thai authorities do not have a leg to stand on and CALC shares still falling.

MERS is causing the usual pandemic fear share sell-off across the APAC region with airlines taking a sizable hit. MERS has been spreading across the Middle East for a very long time now, going mostly un-recorded and unreported, but the recent cases in Taiwan and South Korea show in vivid detail how quickly this virus can spread if authorities do not have their wits about them, as was the case in Taiwan.

Now analysts believe the APAC airline share sell-off to be way over done and as such they are moving many airlines to Outperform. Timothy Ross and Christopher Siow of Credit Suisse, as one leading example, state that “With stock price declines of 10-20% over the past three weeks, we highlight AirAsia X, Asiana Airlines and Cathay Pacific Airways as the best recovery plays with 25%+ upside to our target prices as fundamentals re-assert themselves. We upgrade Korean Air to Outperform (from Neutral), with 15% upside to target price.” The detail of the Credit Suisse APAC Airline Report from the 17th June is well worth a read – contact timothy.ross@credit-suisse.com. Emirates, Jazeera and Etihad have been operating from the centre of the MERS outbreak for years now without substantial ill effect on their businesses and given the sell-off and rapid recovery after both SARS and Ebola outbreaks there is nothing at this time to lead anyone to believe that MERS will present a new and different scenario to the market, especially during a period where airlines continue to grow passenger numbers while oil prices remain depressed.

When considering Korean Air Lines there is also another factor in play and that is the pick-up in Thailand traffic as Thai Airways suffers: Late on Friday the ICAO downgraded Thailand to a Category 2 safety rating from Category 1, after Thai authorities missed the 90-day deadline to resolve safety concerns. This move now puts a ban on any new Thai routes. This should now ensure that the FAA moves to solidify a ban non-stop flights to the USA for Thai registered carriers with the EU and Singapore authorities following their lead, moves by the Korean and Japanese authorities are now key to the future growth of many Thai registered carriers and their next move will be critical for the likes of Thai Airways; Bangkok Airways, Thai AirAsia X, NokScoot Jet Asia Airways and Orient Thai Airlines. From 11th July, all Thai registered airlines are to be inspected for recertification, a procedure expected to take three months. So what will Thai Airways now do with its A350XWB currently in production at Airbus?

So that was the Paris Air Show week. The vibe among the finance and leasing community remains the same – There is plenty of money but not too many deals of the right caliber to deploy the same. As for the wider industry it was clear last week that for 2015 at least, there is a slowing of aircraft orders at the major summer Air Show, however as Boeing and Airbus announce their litany of MOUs and LOIs we would all do well to remember that the Dubai Air Show is just around the corner in November and it is likely that a number of significant orders will be firmed and announced at that show, so to say that we have left behind the days of huge aircraft orders is premature. Indeed, it was not that long ago that jaws would have dropped at the AerCap 100 aircraft order or the 110 aircraft Wizz order or the GECAS 60 aircraft order, now that is all but run of the mill stuff – Oh how times have changed.

Meanwhile: Shares of China Aircraft Leasing Group Holding Ltd are coming under continued pressure this week following their 20% (HK$1.36bn) fall last Friday after the company said it was unable to contact its CEO, Poon Ho Man, following his shock resignation on Wednesday last week. Of course the truth is that few people have seen or heard from Poon Ho Man for many weeks now since he went off on leave on the 18th May. The loss of Poon comes right after Chief financial officer Yu Tai Tei resigned on May 22, with effect from June 18.

CALC has appointed chairman Chen Shuang as Poon’s replacement. It appointed Mok Chung Tat, who joined the company this month, as chief financial officer. At the end of the day it is not a crime to resign from one’s job but as a CEO of a listed company things could surely have been played a little better.

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By TESTCustomwebLP TESTCustomwebLP June 22, 2015 15:30