＜Research＞Citi Lowers TPs on 3 Major CN Airlines; Industry Top Pick AIR CHINA (00753.HK)

　　Citi Research noted in a report that the 3 major Chinese airlines carried more passengers domestically in May than in April, while available seat kilometres (ASKs) continued to fall on a MoM basis as more traffic shifted to international routes.

　　Outbound traffic recovery improved, with AIR CHINA (00753.HK) -0.090 (-2.394%) Short selling $5.25M; Ratio 8.163% , CHINA EAST AIR (00670.HK) -0.040 (-1.942%) Short selling $1.54M; Ratio 16.926% and CHINA SOUTH AIR (01055.HK) -0.080 (-2.649%) Short selling $1.84M; Ratio 5.425% returning to 84%, 94% and 82% of their 2019 non-domestic ASKs respectively. For outbound, the broker forecasted that the ASKs of the three airlines mentioned above would return to 88%, 103% and 86% of their 2019 ASKs respectively in July, and the overall industry capacity would rise to 77% of its 2019 ASKs in terms of number of seats offered.

　　Related NewsJPM Lowers TPs for Big 3 CN Airlines, Keeps Positive View on Sector

　　The broker also highlighted that prices on its selected domestic and outbound routes have risen markedly over the summer, and expected pricing on these routes to fall back a little after August, but to remain high through the October Golden Week holiday.

　　Citi's preference pecking order is led by AIR CHINA, followed by CHINA SOUTH AIR, and then CHINA EAST AIR. AIR CHINA is the broker's sector's top pick, with the view that the airline will benefit most from the recovery of its outbound routes, that its market share of routes to Europe and Japan will increase by 2024, and that a shift in the focus of traffic to international routes will help improve overall performance and costs.

　　Nevertheless, Citi chopped its target price on AIR CHINA from $7.1 to $5.35, on CHINA EAST AIR from $3.3 to $2.53, and on CHINA SOUTH AIR from $4.6 to $3.8, with Buy rating for all 3. The broker considered that current valuations did not fully reflect the upside of the improvement in the airlines' projected return on equity for 2024-26.

　　(HK stocks quote is delayed for at least 15 mins.Short Selling Data as at 2024-06-21 16:25.)

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