Zero-COVID Policy Likely To Stay; Reducing Earnings Estimates for Chinese Airlines, Maintaining FVEs

As expected, all the three Chinese airlines we cover--Air China, China Southern Airlines, and China Eastern Airlines--saw deeper losses in the fourth quarter of 2021. Revenue was sluggish due to travel restrictions amid COVID-19 resurgence across the country. This will probably extend into 2022 as we think the zero-COVID policy will continue. After factoring in a slower travel recovery and higher fuel prices in 2022, we now forecast losses of CNY 9 billion-CNY 16.9 billion, compared with CNY 6.2 billion-CNY 8.3 billion losses in our original estimates. Our fair value estimates are unchanged at HKD 6.50 for Air China, HKD 5.50 for China Southern, and HKD 2.80 for China Eastern. The H-shares of the three airlines are trading at about 5%-15% discounts to our fair value estimates. For investors looking to trade on travel recovery, we think luggage company Samsonite is a better choice from a risk/reward perspective.