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Air China
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After US$2 billion losses, Chinese airlines are among top picks again at CICC, Citic as valuation trigger emerges

  • CICC and Citic Securities recommend airline stocks, citing a return in travel demand and plunging jet fuel costs
  • Air China, China Eastern and China Southern are trading below or near their book values, a key turning point in past stock prices

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A passenger wearing a protective mask walks past China Eastern Airlines Corp. aircraft standing on the tarmac at the Wuhan Tianhe International Airport in Wuhan, China, on May 2. Photo: Bloomberg
Zhang Shidong
China’s biggest airlines have become among the top picks at some of the nation’s largest brokerages, after posting their worst quarter since the 2008 crisis.
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The stocks – among the worst hit by the coronavirus pandemic – are due for a massive rebound after dipping below their book values, a level that historically marked a key turnaround in market prices, according to China International Capital Corp (CICC) and Citic Securities.

The government recently eased restrictions on travelling as the fight to contain the pandemic started to yield results, while a slump in crude and jet fuel prices will help lighten their operating costs, the brokerages said.

“The worst for the airlines is over,” said Zhao Xinyue, an analyst in Shanghai at CICC said in a report, adding that the lowering of public health warning will give some traction to the rebound in domestic travel. “We expect an improvement in second-quarter profits.”

The slump in air travel this year has pushed mainland-listed Air China, China Eastern Airlines and China Southern Airlines below their asset values. The last time this happened, the stocks surged at least four folds in the following 12 months.

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Air China, China Southern and China Eastern reported combined losses of 14 billion yuan (US$2 billion) last quarter, as Covid-19 lockdown measures forced local and foreign carriers to slash their capacities by more than 90 per cent.

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