Chinese Airlines Whipped by Domestic Lockdown; Reducing 2022 Earnings Estimates; Maintaining FVEs

The three Chinese airlines we cover—Air China, China Southern Airlines, and China Eastern Airlines—were hit hard by the lockdown in Shanghai and other domestic cities. All three airlines saw heavier losses year over year in the first quarter. With the international market almost wiped out and the domestic market also at stake, losses are set to deepen. We now forecast 2022 full year losses of CNY 20.3 billion for Air China, CNY 15.8 billion for China Eastern and CNY 14.4 billion for China Southern. Our long-term earnings estimates are unchanged. We keep our fair value estimates 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%-20% 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. Among the three airlines, we think China Southern offers better risk/reward. It is the only one that saw year-over-year revenue growth and positive operating cash flow in the quarter thanks to bigger domestic exposure.