Shares of Cathay Pacific Airways Ltd surged as much as 18.7% on Wednesday, reaching their highest level since Feb. 24, after the carrier announced a HK$39 billion ($5 billion) recapitalisation plan led by the Hong Kong government.
The stock later trimmed most of its early gains, falling to as low as HK$8.85, still up 0.5% from the previous close.
Brokers attributed the easing to investors squaring their positions due to broader uncertainty over the longer-term prospects for the aviation industry amid the coronavirus outbreak.
"There are still many uncertainties in the second half of the year as the pandemic is still ongoing," said Linus Yip, chief strategist at First Shanghai Securities.
"For the carrier, issues including cash flow are our main concern. We have to see if it can sail through the difficult time."
Brokerage Daiwa downgraded Cathay to "sell" from "hold" and trimmed its target price to HK$6.50 from HK$8.60, saying it expected the carrier's share price to come under pressure amid a huge dilution due from the bailout plan.
The rescue package includes a HK$11.7 billion rights issue to existing shareholders, led by Swire Pacific and Air China.
Cathay said it was burning through about HK$3 billion ($387 million) a month in cash.
Brokerage Jefferies said the rescue plan removed a liquidity overhang, but at the expense of 44% earnings dilution.
It maintained a "hold" rating on the stock until it sees signs of traffic recovery.
Cathay said it expects to repay the Hong Kong government for HK$19.5 billion of preference shares over three to five years.
Finance Secretary Paul Chan said on Tuesday it was not the government's intention to remain a long-term shareholder.
Shares of Swire Pacific gained 1.1% in late morning trade, while the Hong Kong shares of Air China fell 2.6%.
(Reporting by Donny Kwok; Editing by Shri Navaratnam and Stephen Coates)