Project Sunrise: The catalyst for a re-rating of Qantas

Research evidence excerpt

Project Sunrise: The catalyst for a re-rating of Qantas

Asia Pacific InsightM

Executive Summary

Investment Conclusion

We reiterate our Overweight rating on QAN and increase our 12-month price target to

A$12.50/share (from A$10.60). We believe Project Sunrise is the catalyst for a re-rating

of QAN's Airlines business, but the investment case extends beyond the initial ~A$400m

EBIT target. Together with Project Fysh and the broader fleet renewal program, we

believe QAN is creating a structurally higher-quality airline with stronger competitive

advantages, higher-quality earnings and improved capital returns.

Our conviction has increased following the recent Project Sunrise showcase in Toulouse,

where we gained greater confidence in both the differentiated customer proposition and

management's execution capability. We now forecast FY31E International EBIT of A

$1.23bn, consistent with our earnings power analysis and towards the middle of our low

and mid-case scenarios ( Exhibit 27 ). While our FY31E Group EBIT sits only 8% above

Visible Alpha consensus, our International EBIT forecast is 26% above consensus,

highlighting what we believe remains an underappreciated earnings opportunity.

Importantly, despite generating one of the highest returns on invested capital among

global airlines, QAN continues to trade at only ~11x FY1 P/E, representing a meaningful

discount to global peers ( Exhibit 2 ). We believe improving business quality should narrow

this valuation gap. We do not expect the re-rating to occur immediately. Rather, we expect

the valuation discount to narrow progressively as Project Sunrise is de-risked through

pricing, bookings and aircraft delivery.

Exhibit 2: QAN generates one of the highest ROICs in global aviation but trades below

peer multiples

ROIC vs. P/E