Air China Ltd-H

  • Ticker753
K Ajith
  • K Ajith

Air China (753 HK) : 1H21: Weak 1H21, but guidance for improved yields...

Air China’s 1H21 net loss was 71% higher than that of CSA, mainly due to higher opex and loss from Cathay Pacific. However, the carrier is optimistic of a recovery in domestic yield. In 2Q21. Air China’s total yield also improved by 15.8% qoq, indicating a more rational pricing environment. While Air China remains highly levered, we believe that the worst is over. We upgrade the stock to BUY with a target price of HK$6.26.

K Ajith
  • K Ajith

Air China (753 HK) : 2020: Weakest earnings among the big three; Yield...

Air China, like other Chinese carriers, would be impacted by weak domestic load factors, as well as restrictions on international inbound and outbound travel. We have lowered our target price by 19% to reflect these risks along with the requirement of substantial operating and capex outlays. Still, general expectation is for the COVID-19 infections to slow down by late-April and if so, travel restrictions would be eased and Air China could soar again. Downgrade to HOLD. Target: HK$6.72.

Jayson Kong ... (+2)
  • Jayson Kong
  • K Ajith

China Aviation : China southern airlines fares the best; All three air...

The key takeaway from 3Q results is CSA’s superior earnings and cash flow. We believe it can be attributed to aggressive cargo expansion, rather than a recovery in pax yields. All three carriers registered positive OCF for the period, on margins ranging from 40-45%. We advise investors to hold out for: a) a reopening of borders, which should lift international traffic; and b) delivery of vaccines, which should result in a surge in cargo traffic and yields in 2021. Maintain MARKET WEIGHT.

Jayson Kong ... (+2)
  • Jayson Kong
  • K Ajith

China Aviation : Expect further re-rating in anticipation of vaccine r...

We have raised our target prices for the Chinese airlines by approximately 20%. Reasons are as follows: a) China’s domestic seat capacity is now higher vs pre-COVID- 19 levels and load factor was at 73% in August. This suggests domestic ASP are likely to rise in 2H20 and 2021; b) the rolling out of vaccines by end-December would imply that countries will gradually open borders to Chinese who are vaccinated and this should boost Chinese airlines’ yields and market share. Lastly, a shortage of bellyhold capacity will push air cargo rates in 2021 as airlines distribute vaccines globally. Upgrade ...

Jayson Kong ... (+2)
  • Jayson Kong
  • K Ajith

China Aviation : 1H20: Losses within estimates; 2H20 recovery hinges o...

The big three Chinese airlines reported record-high interim losses but were largely within our expectations. With further delays in border re-openings, 2H20’s recovery would be contingent on the regaining of pricing power on domestic routes. We now expect international traffic to only pick up in 2Q21. On a slightly positive note, cash burn should ease substantially amid the completion of ticket refunds and deferment in aircraft deliveries. CEA is our top pick, followed by CSA. Maintain UNDERWEIGHT.

K Ajith
  • K Ajith

Air China (753 HK) : 1H21: Weak 1H21, but guidance for improved yields...

Air China’s 1H21 net loss was 71% higher than that of CSA, mainly due to higher opex and loss from Cathay Pacific. However, the carrier is optimistic of a recovery in domestic yield. In 2Q21. Air China’s total yield also improved by 15.8% qoq, indicating a more rational pricing environment. While Air China remains highly levered, we believe that the worst is over. We upgrade the stock to BUY with a target price of HK$6.26.

K Ajith
  • K Ajith

Air China (753 HK) : 2020: Weakest earnings among the big three; Yield...

Air China, like other Chinese carriers, would be impacted by weak domestic load factors, as well as restrictions on international inbound and outbound travel. We have lowered our target price by 19% to reflect these risks along with the requirement of substantial operating and capex outlays. Still, general expectation is for the COVID-19 infections to slow down by late-April and if so, travel restrictions would be eased and Air China could soar again. Downgrade to HOLD. Target: HK$6.72.

Jayson Kong ... (+2)
  • Jayson Kong
  • K Ajith

China Aviation : China southern airlines fares the best; All three air...

The key takeaway from 3Q results is CSA’s superior earnings and cash flow. We believe it can be attributed to aggressive cargo expansion, rather than a recovery in pax yields. All three carriers registered positive OCF for the period, on margins ranging from 40-45%. We advise investors to hold out for: a) a reopening of borders, which should lift international traffic; and b) delivery of vaccines, which should result in a surge in cargo traffic and yields in 2021. Maintain MARKET WEIGHT.

Jayson Kong ... (+2)
  • Jayson Kong
  • K Ajith

China Aviation : Expect further re-rating in anticipation of vaccine r...

We have raised our target prices for the Chinese airlines by approximately 20%. Reasons are as follows: a) China’s domestic seat capacity is now higher vs pre-COVID- 19 levels and load factor was at 73% in August. This suggests domestic ASP are likely to rise in 2H20 and 2021; b) the rolling out of vaccines by end-December would imply that countries will gradually open borders to Chinese who are vaccinated and this should boost Chinese airlines’ yields and market share. Lastly, a shortage of bellyhold capacity will push air cargo rates in 2021 as airlines distribute vaccines globally. Upgrade ...

Jayson Kong ... (+2)
  • Jayson Kong
  • K Ajith

China Aviation : 1H20: Losses within estimates; 2H20 recovery hinges o...

The big three Chinese airlines reported record-high interim losses but were largely within our expectations. With further delays in border re-openings, 2H20’s recovery would be contingent on the regaining of pricing power on domestic routes. We now expect international traffic to only pick up in 2Q21. On a slightly positive note, cash burn should ease substantially amid the completion of ticket refunds and deferment in aircraft deliveries. CEA is our top pick, followed by CSA. Maintain UNDERWEIGHT.

K Ajith
  • K Ajith

Air China (753 HK) : 1H21: Weak 1H21, but guidance for improved yields...

Air China’s 1H21 net loss was 71% higher than that of CSA, mainly due to higher opex and loss from Cathay Pacific. However, the carrier is optimistic of a recovery in domestic yield. In 2Q21. Air China’s total yield also improved by 15.8% qoq, indicating a more rational pricing environment. While Air China remains highly levered, we believe that the worst is over. We upgrade the stock to BUY with a target price of HK$6.26.

K Ajith
  • K Ajith

Air China (753 HK) : 2020: Weakest earnings among the big three; Yield...

Air China, like other Chinese carriers, would be impacted by weak domestic load factors, as well as restrictions on international inbound and outbound travel. We have lowered our target price by 19% to reflect these risks along with the requirement of substantial operating and capex outlays. Still, general expectation is for the COVID-19 infections to slow down by late-April and if so, travel restrictions would be eased and Air China could soar again. Downgrade to HOLD. Target: HK$6.72.

Jayson Kong ... (+2)
  • Jayson Kong
  • K Ajith

China Aviation : China southern airlines fares the best; All three air...

The key takeaway from 3Q results is CSA’s superior earnings and cash flow. We believe it can be attributed to aggressive cargo expansion, rather than a recovery in pax yields. All three carriers registered positive OCF for the period, on margins ranging from 40-45%. We advise investors to hold out for: a) a reopening of borders, which should lift international traffic; and b) delivery of vaccines, which should result in a surge in cargo traffic and yields in 2021. Maintain MARKET WEIGHT.

Jayson Kong ... (+2)
  • Jayson Kong
  • K Ajith

China Aviation : Expect further re-rating in anticipation of vaccine r...

We have raised our target prices for the Chinese airlines by approximately 20%. Reasons are as follows: a) China’s domestic seat capacity is now higher vs pre-COVID- 19 levels and load factor was at 73% in August. This suggests domestic ASP are likely to rise in 2H20 and 2021; b) the rolling out of vaccines by end-December would imply that countries will gradually open borders to Chinese who are vaccinated and this should boost Chinese airlines’ yields and market share. Lastly, a shortage of bellyhold capacity will push air cargo rates in 2021 as airlines distribute vaccines globally. Upgrade ...

Jayson Kong ... (+2)
  • Jayson Kong
  • K Ajith

China Aviation : 1H20: Losses within estimates; 2H20 recovery hinges o...

The big three Chinese airlines reported record-high interim losses but were largely within our expectations. With further delays in border re-openings, 2H20’s recovery would be contingent on the regaining of pricing power on domestic routes. We now expect international traffic to only pick up in 2Q21. On a slightly positive note, cash burn should ease substantially amid the completion of ticket refunds and deferment in aircraft deliveries. CEA is our top pick, followed by CSA. Maintain UNDERWEIGHT.

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