"Big Banks" Bank of America Securities lowers target prices for the three major mainland airlines, expecting challenges from rising fuel prices this year

According to a research report by Bank of America Securities, it is expected that the three major airlines in mainland China, Air China (00753.HK), China Southern Airlines (01055.HK), and China Eastern Airlines (00670.HK), will record year-on-year profit growth in the first quarter of this year. However, in April, domestic aviation fuel prices in China surged by 73% year-on-year, leading to an increase in domestic fuel surcharges, while international fuel surcharges are determined by each airline. Although fuel surcharges can partially offset the rise in fuel prices, leisure travelers are relatively sensitive to prices, and considering the competition from high-speed rail, there is a risk to ticket prices excluding fuel surcharges. However, under the circumstances of limited capacity growth and rising cancellation rates, it is estimated that the room for decline in ticket prices excluding fuel surcharges is limited.

Therefore, the firm has lowered its net profit forecasts for the three major airlines in mainland China, expecting Air China, China Eastern Airlines, and China Southern Airlines to record net losses of RMB 5.7 billion, RMB 7.1 billion, and RMB 3.8 billion, respectively. It reaffirms a "Buy" rating for Air China, with the A-share target price lowered from RMB 11.35 to RMB 9.1, and the H-share target price lowered from HKD 8.3 to HKD 6.7.

At the same time, the firm reaffirms a "Neutral" rating for China Southern Airlines, as its current valuation reasonably reflects the profit recovery from 2027 to 2028; the A-share target price for China Southern Airlines is lowered from RMB 8.11 to RMB 6.9, and the H-share target price is lowered from HKD 5.92 to HKD 4.9.

Additionally, the firm also reaffirms a "Underperform" rating for China Eastern Airlines, believing that the current valuation is too high and exaggerates its profit and return on equity recovery; the A-share target price for China Eastern Airlines is lowered from RMB 3.9 to RMB 3.8, and the H-share target price is lowered from HKD 2.9 to HKD 2.7