20141119-法国巴黎银行-Lower_oil_price_to_lift_earnings_11页_413kb

Air China (753 HK) Summary

Core Content

This document provides an analysis of Air China's financial performance and valuation, with a focus on the impact of lower fuel prices and market conditions on its earnings and stock price. It includes updated earnings estimates, target price adjustments, and key assumptions used for valuation.

Main Viewpoints

• Earnings Estimate Revision: The report updates the earnings estimates for 2015 and 2016 to reflect lower fuel price assumptions and slightly weaker yield assumptions.
• Target Price Increase: The target price is raised from HKD5.85 to HKD5.93, based on the revised earnings estimate, while using an unchanged P/BV multiple of 1x.
• Stock Performance: Air China's stock price increased by 10% since the 3Q results announcement on 28 October, outperforming the HSCEI's -1% change.
• Fuel Price Impact: Lower fuel prices are expected to reduce fuel surcharges, thereby improving earnings. The assumption of a Singapore jet kerosene price of USD112/barrel for 2015 and 2016 is used.
• Visa Policy Impact: The relaxed US visa policy for Chinese nationals is expected to boost traffic and yields for Air China, which is the largest operator between China and the US.
• Capacity Management: The airline is expected to reduce capacity on non-performing routes, leading to improved yields and profitability.
• Valuation Metrics: Key valuation metrics such as P/BV, EV/EBITDA, and P/E are analyzed, with the P/BV multiple remaining at 1x.

Key Information

Financial Highlights (2013-2016)

Earnings Sensitivity

Key Assumptions (2015E and 2016E)

Stock Performance

• Target Price: HKD5.93
• Close: HKD5.28
• Upside: +12.4%
• Prior Target Price: HKD5.85
• Change in TP: +1.5%
• Stock Performance Since 3Q: +10%
• Relative to HSCEI: +10%
• Market Recommendations: Positive (14), Neutral (5), Negative (2)

Investment Thesis

• Domestic Market: Yield is expected to stabilize due to lower base in 2013 and better supply management.
• International Market: Improved operating costs due to new wide-bodied aircraft on long-haul routes.
• Economic Slowdown: Expected to have a negative impact on traffic and yields, but the airline's capacity management may offset this.

Risks

• Lower-than-expected traffic growth
• Lower-than-expected load factor
• Lower-than-expected yields due to higher competition or economic slowdown
• Higher-than-expected fuel prices
• RMB depreciation against USD

Company Background

• Flagship Carrier: Air China is the flag carrier of the PRC with hubs in Beijing, Chengdu, and Shanghai.
• Subsidiaries: Includes Shenzhen Airlines and holds a stake in Cathay Pacific.
• Capacity and Traffic Growth: Maintained at 10% for 2015 and 2016.

Valuation Metrics

Key Drivers

• Top Line: Traffic, yield, and load factor
• Bottom Line: Fuel prices and USD/RMB exchange rate

Conclusion

The report concludes that the lower fuel prices and improved capacity management are positive factors for Air China's earnings. The stock has shown strong performance since the 3Q results, and the target price has been revised upward. The airline is expected to benefit from the US visa relaxation and improved economic conditions, although risks remain due to potential competition and RMB depreciation.