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Cebu Pacific Profit


By: Marvin Germo | March 29, 2018

Cebu Pacific net income drops to 7.9 Billion Pesos

Operator of budget airlines Cebu Pacific and CebGo, Cebu Air Inc., saw an 18.9% decline in their net profits for 2017 compared to its profits in the entirety of 2016.

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No thanks to fuel price hikes and peso value depreciation

Due to the increase in passenger revenues, cargo revenues, and ancillary revenues of 7.2%, 29.2%, and 14.9%, respectively, Cebu Pacific’s group generated revenues went up by 9.9% to P68.03 billion by the end of last year from P61.89 billion in 2016.

However, the company saw a 24% swell in jet fuel prices this year. Aviation fuel price went up to $65.31 per barrel from $52.83 per barrel in the previous year.

Cebu Pacific also cited the peso’s depreciation versus the US dollar as another reason for the decline in their net profit, saying that the peso devaluated to an average of P50.40 per dollar this year compared to P47.50 per dollar in 2016.

The Gokongwei-led aviation company also attributed their profit loss to adding flight operations for the bigger Airbus A330 for which handling charges were relatively more expensive in contrast to other aircrafts.

For these reasons, Cebu Pacific Air observed a 16.6% surge in operating expenses to P57.90 billion in 2017 from P49.64 billion in the year prior.

Impact on stock market and investors

Because of Cebu Pacific Air’s annual disclosure to the stock exchange for the end of 2017, shares for Cebu Air went down 4.15% or P3.90 to end at P90. Moreover, the aviation company’s losses did not only impact itself but also pulled down conglomerate JG Summit Holdings’ income by 16.5%.

Alongside operating profit drops, the group also suffered a P434.87 million net foreign exchange loss. This is mostly due to Cebu Pacific Air’s major exposure to foreign exchange rate fluctuations in connection with their long-term US dollar denominated incurred debt for airline acquisitions.

Short-term effect

While Cebu Pacific’s 19% decline in profit evokes market reactions and causes stock price fluctuations, these negative impacts on stock prices are mostly short-term. Since JG Summit Holdings is one of the big cap stocks that are highly susceptible to market reactions, any negative impact that Cebu Pacific Air may have caused in the stock market is predicted to inflect in a matter of 30 days. When this happens, Cebu Pacific Air is back to being profitable. In fact, as of writing, Cebu Pacific’s share price is back up to P94.60.

The Upside

Looking at the bright side, passenger, cargo, and ancillary revenues continue to drive earnings for the budget carrier. Considering that their profit loss is purely due to jet fuel price hikes and peso-dollar exchange rate fluctuations, the company proves their operations still successful despite the decline in profit. With the expansion of their operations signaled by opening more domestic routes, increasing frequencies in existing routes, and acquiring new aircrafts beginning this year until 2022, Cebu Pacific is expected to bounce back from this fiasco in no time.

The Technicals

Looking at the chart below you can see that the stock has dropped back to the 90 Peso support level, coupled by it dropping fast and the RSI crossing up this warrants our trade setup to do a quick trade. For those who bought at the 90 Peso level please make sure to set your target price close to 96.50. If the stock fails to breakout from those levels you may now take profit.

Should the stock breakout from 96.50, adjust your target price to 103 as that will be the next resistance level.

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