Reducing Our Chinese Airline Fair Value Estimates on Depreciation of Yuan

As expected, the three Chinese airlines we cover—Air China, China Southern Airlines, and China Eastern Airlines— reported another quarter of huge losses, ranging from CNY 6.1 billion to CNY 9.4 billion. With borders remaining closed and domestic cities under constant lockdowns, heavy losses are set to continue. We have increased our 2022 loss estimates to CNY 39.1 billion for Air China, CNY 24.8 billion for China Southern, and CNY 35.4 billion for China Eastern. In addition, we expect all three airlines to remain in the negative in 2023. We cut our fair value estimates by 8%-12% for the three airlines primarily due to the depreciation of the yuan against the Hong Kong dollar. We now value Air China at HKD 5.60, China Southern at HKD 4.36, and China Eastern at HKD 2.30. The shares of the three airlines are mostly trading around or above our fair value estimates. For investors looking to trade on travel recovery, we think Singapore Airlines is a better pick.