Citic Pacific's decision to offload its stake in Cathay Pacific Airways signals a return to basics for the Beijing-controlled company, which took a big hit from ill-timed currency bets last year.
The move away from the fickle aviation market to focus on bread-and-butter operations such as speciality steel, iron ore mining and mainland property has been generally welcomed by analysts.
Citic Pacific, which reported a deficit of HK$12.66 billion last year on massive losses from unauthorised currency bets, reaped a HK$1 billion disposal gain from its sale of a 14.5 per cent stake in Cathay to Air China and Swire Pacific for HK$7.35 billion. It will retain a 2.98 per cent stake in Cathay after the disposal.
'Investors are generally confident of the new management team's ability to restructure the company,' said Billy Ng, an analyst at JP Morgan. 'The Cathay disposal will further reinforce this confidence.'
Shares of Citic Pacific plunged as much as 9.8 per cent yesterday but pared losses to close 1.31 per cent down at HK$22.55. The benchmark Hang Seng Index reversed an earlier fall and ended up 0.84 per cent.
JP Morgan revised the steel-to-property conglomerate's target price up 70 per cent to HK$25.50 and doubled this year's earnings forecast to HK$4.28 billion after the disposal.
Mr Ng said the deal was positive for Citic Pacific, as the disposal would allow it to focus on its core business and reduce debt gearing to 70 per cent from 84 per cent. He expected the firm to continue to offload its non-core assets to reduce debt further.
