Margaret Li
margaretli@phillip.com.hk
22776535 (+852 2277 6535)

Automotive & Aviation (Zhang Jing)

This month I released new reports on Cathay Pacific (293.HK) and CATL (3750.HK).

yoy previously announced its interim results for 2025. In the first half, it recorded revenue of HKD 54.309 billion (HKD, same below), a year-on-year increase of 9.5%; however, profit growth was weak, primarily due to pressure on passenger yield and expanding losses at its low-cost subsidiary. Net profit was HKD 3.651 billion, a mere 1.1% increase year-on-year. Basic earnings per ordinary share were 56.7 HK cents, with a dividend per share of 20 HK cents, representing a payout ratio of 35%. This marks the second consecutive interim dividend since the post-pandemic recovery.

During the reporting period, yoy's business volume recovery was strong. Passenger capacity (ASK) increased by 26.3% year-on-year, passenger traffic (RPK) surged 30.0%, and the number of passengers carried reached 13.6 million. The passenger load factor improved by 2.4 percentage points to 84.8% (higher than the pre-pandemic level of 84.2% for the same period).

As global capacity supply recovered and market competition intensified, fare levels retreated from historical highs. yoy's passenger yield per RPK decreased significantly by 12.3% year-on-year to 60.4 HK cents (still higher than the pre-pandemic 54.9 HK cents for the same period), with yields on Americas and North Asia routes declining by 17.5% and 14.3%, respectively. Concurrently, to expand its long-haul network, the company increased deployment on lower-yield routes, dragging down the overall yield level. These factors led to revenue growth being offset by pricing pressure. The group's passenger service revenue reached HKD 37.21 billion, a 12.7% year-on-year increase, slower than the growth in passenger traffic.

In cargo operations, impacted by tariff increases and changes in small-value duty-free policies, although cargo volume increased by 11.4%, the cargo load factor decreased by 1.3 percentage points year-on-year to 58.6%, and yield slightly declined by 3.4% to HKD 2.59 (still higher than the pre-pandemic HKD 1.88). The company responded through diversified strategies and adjustments to its global network. The group's cargo service revenue remained stable, increasing by 1.2% year-on-year to HKD 12.76 billion.

From a consolidated statement perspective, yoy's cost structure in the first half of 2025 showed the following characteristics: fuel costs benefited from a 14.3% decline in fuel prices, increasing only 3.5% year-on-year, driving the unit fuel cost per ATK down by 11.0% year-on-year. Non-fuel costs increased by 14.2% year-on-year to HKD 33.71 billion due to expanded available capacity. Staff costs, in-flight service costs, and ground service costs increased by 20.7%, 32%, and 23%, respectively, reflecting increased human resources and route and aircraft maintenance expenses resulting from capacity expansion.

In its interim report, yoy highlighted the successful integration with Hong Kong International Airport's three-runway system, becoming one of the first base carriers to achieve full runway coordinated operations. This significantly improved its flight punctuality rate to 92.3%. As of mid-2025, yoy's fleet comprised 234 aircraft, and it plans to purchase 14 more Boeing 777-9 aircraft to strengthen its long-haul network, with expected deliveries by 2034 or earlier, further enhancing its long-range capacity.

From July to October 2025, yoy continued to see strong passenger demand, with the cumulative number of passengers reaching 27,000 thousand, a 26.1% year-on-year increase. In October, the monthly load factor rose to 86%, a new high for the period, driven by holidays and business activities such as National Day, Mid-Autumn Festival, and the Canton Fair. In terms of cargo, the cumulative tonnage from July to October grew by 7.6% year-on-year, with October cargo tonnage surpassing 150 thousand tonnes, a 12% increase from the previous month. The "Cathay Fresh Cargo" and "Cathay Priority Cargo" services saw strong demand, supporting cargo resilience. Hong Kong Express's passenger volume in October increased by 32% year-on-year, with capacity and demand growing in sync, showing the initial success of network diversification. With fleet efficiency improvements and cost optimisation, along with strong Christmas season bookings, profitability in the second half is expected to recover.

We revised the EPS forecast of Cathay to be HK$1.20/1.40/1.63 in 2025/2026/2027. Based on the revised financial forecast, we lift target price to HK$12.6 for the Company, equivalent to 2025/2026/2027E 10.5/9.0/7.5 x P/E.

In the first three quarters of 2025, CATL reported revenue of RMB283.072 billion (RMB, the same below), up 9.28% yoy; net profit attributable to the parent company was RMB49.034 billion, up 36.20% yoy. The strong performance was mainly driven by robust demand in the power battery and energy storage battery sectors, as well as expansion in overseas markets. Operating cash flow amounted to RMB80.66 billion, up 19.6% yoy. The Company maintained abundant cash reserves, with cash and trading financial assets exceeding RMB360 billion at the end of the period.

In Q3 2025, CATL reported revenue of RMB104.186 billion, up 12.90% yoy and 10.62% qoq; net profit attributable to the parent company was RMB18.549 billion, up 41.21% yoy and 12.26% qoq. The Q3 gross margin was 25.8%, largely flat quarter-on-quarter; net profit margin was 19.1%, up 4.1 ppts yoy. The rise in lithium carbonate market prices led to a yoy decrease in impairment losses, significantly boosting performance. Per unit gross profit and net profit for batteries remained relatively stable quarter-on-quarter. In addition, revenue from technology licensing continued to increase, reflecting recognition of the Company's technologies and patents.

During this period of strong capital expenditure, CATL's global capacity deployment has accelerated. Its German plant commenced operations last year; construction of the Hungarian plant is progressing as planned, with Phase I exceeding 30GWh and expected to be completed, installed, and commissioned by the end of 2025, while Phase II is also advancing steadily. The Spanish plant has completed preliminary approvals, and the Indonesian plant is scheduled to commence operations in the first half of 2026.

Benefiting from the growing economic viability of commercial vehicle electrification and the improvement of infrastructure, the domestic new energy commercial vehicle sector is experiencing rapid growth, with an electrification rate reaching 23%. The Company's shipments of commercial power batteries have grown rapidly, with their share gradually increasing to approximately 20% of total shipments. The Company is actively building a battery-swapping ecosystem for heavy trucks to accelerate their electrification. In the passenger vehicle segment, the Company has launched the second-generation Shenxing ultra-fast charging battery, the Xiaoyao dual-core battery, and the new sodium-ion power battery for passenger cars. The future product mix is expected to further improve.

In the energy storage sector, the rapid expansion of global AI data centres has driven significant power demand, resulting in surging energy storage needs. The Company's current energy storage capacity is fully utilised, and capacity expansion is being accelerated, especially the mass production of the 587Ah energy storage product to meet market demand. The Company's 587Ah dedicated energy storage cell has achieved an optimal balance among three key elements---energy density, safety margin, and long lifespan---marking a milestone. Shipments of the 587Ah product are expected to gradually increase.

As for valuation, we expected diluted EPS of CATL to RMB 15.0/19.0/22.9 for 2025/2026/2027. And we accordingly gave the target price to HKD 635, respectively 38/30/25x P/E for 2025/2026/2027.

Utilities, Commodity, Shipping (Margaret Li)

This month I released 2 initiation reports of 361 DEGREES (1361.HK) & POP MART (9992.HK).

According to data from the National Bureau of Statistics, from January to October 2025, the total retail sales of consumer goods reached 41.22 trillion yuan, representing a growth of 4.3%. Nationwide online retail sales of physical goods amounted to 10.40 trillion yuan with a year-on-year increase of 6.3%. Retail sales of sports and recreational goods reached 139.7 billion yuan, up 18.4% compared to the same period last year. A report from the General Administration of Sport of China shows that the number of participants in outdoor sports in China has exceeded 400 million. It is believed that, amid the nationwide fitness trend, this number is expected to continue growing, thereby driving increased sales of sportswear. 361° is actively expanding into the women's and children's segments, establishing a differentiated competitive advantage. This year, China launched a nationwide unified childbirth subsidy. By reducing the costs of childbirth and child-rearing and increasing willingness to have children, this policy is expected to contribute to the recovery of the child population base in the long term. Coupled with the growing demand for children's sports activities driven by the "Double Reduction" policy and the national fitness campaign, parents' willingness to spend on children's sportswear is rising. The children's sportswear market is expected to maintain strong growth momentum. We believe that 361°'s children's business will provide steady growth drivers for the company. In the future, 361° will continue to sponsor multiple sports events, such as the WTCC World Tennis Continental Cup and others. NBA superstar Nikola Jokić officially became a brand ambassador for 361° at the end of 2023, entering into a long-term partnership with the brand and launching his own signature shoe series (the JOKER series). He visited China in July this year. These activities have effectively enhanced brand awareness and exposure. We are optimistic about 361°'s advantages in lower-tier markets and its prospects for expanding into overseas markets.

We forecast the company's revenue for 2025-2027 to be 11.27 billion yuan, 12.53 billion yuan, and 13.80 billion yuan, respectively, with EPS of 0.63 yuan, 0.67 yuan, and 0.73 yuan. We employ two valuation methods: the relative valuation method (P/E) and the absolute valuation method (DCF).

Relative valuation method: We selected comparable companies for valuation, including Li Ning, Anta, and Xtep, which have similar business models. Under this approach, the target price is forecasted to be HK$7.36, corresponding to a forward P/E ratio of 10x for 2026.

Absolute Valuation Method: Key assumptions in the DCF analysis:1. The WACC, calculated using the formula WACC = Kd × Wd × (1 - T) + Ke × (1 - Wd), is 6.46%.2. The discount period spans from 2025 to 2029.3. The terminal growth rate is 3%.With a WACC of 6.46% and a terminal growth rate of 3%, the company's reasonable intrinsic value per share is HKD 7.58. Under scenarios where the WACC ranges from 5.81% to 7.11% and the terminal growth rate varies between 2.7% and 3.3%, the reasonable intrinsic value per share ranges from HKD 6.48 to HKD 9.56.

Considering the limitations of the DCF model, we have taken the arithmetic average of this valuation result and the P/E valuation outcome. This yields a final target price of HKD 7.47, and we initiate coverage with a "Buy" rating.

As a leader in China's trendy toy industry, POP MART possesses comprehensive end-to-end IP operation capabilities. The company has adeptly captured market demand for emotional consumption and built a diversified IP portfolio. We believe that under favorable policies, the company is well-positioned to continue incubating other hit IPs in the future, thereby reducing its revenue reliance on the Labubu series. With its ongoing global expansion, the company has achieved explosive growth in overseas revenue, indicating substantial potential for further growth. We forecast the company's revenue for 2025-2027 to be RMB 40.06 billion, RMB 57.3 billion, and RMB 67.8 billion respectively, with EPS of RMB 9.61, RMB 14.24, and RMB 15.75. We initiate coverage with a Buy rating and a target price of HK$237.3, corresponding to a forecasted 2026 P/E ratio of 15x.

Fig 1. Performance of Recommended Stocks

A stock is calculated by RMB yuan.
Source: Phillip Securities Research

(Report Date: January 2, 2026)
Source: PSHK Est.

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