Air China released its 3Q17 results under PRC GAAP after market close on 27October. Despite a mild 3.8% passenger traffic (RPK) YoY growth, the airline'sgross revenue increased by 9.1% YoY to RMB34.8bn probably on the back ofyield improvement, thanks to the successful implementation of airfare increasestrategy, in our view. More importantly, Air China's 3Q17 revenue grew faster thanthe 8.9% operating cost growth, notwithstanding higher fuel cost YoY. Althoughthe airline's investment income stay muted with 50.9% YoY decline, it is betterthan the loss recorded in 1H17, probably due to some financial improvement inits Cathay Pacific (0293.HK, HKD13.36, Sell) associate, in our view. Together witha RMB247m finance income (3Q16: RMB1.3bn finance costs) due to FX gain onRMB appreciation, Air China achieved a 31.4% YoY jump in reported net profitto RMB5.0bn.    On a 9M17 basis, Air China’s reported net profit of RMB8.3bn (up 14.6% YoY)accounts for 114% of our full-year FY17 estimates and 103% of Bloombergconsensus forecasts. Even though 4Q is usually a slow season for Chinese airlines,we see upside risk to our full year forecast, probably due to decent yield trendand higher than expected FX gain. In September, Air China recorded steady 6.3%YoY passenger traffic (RPK) growth, driven by 8.2% YoY growth in internationalpassenger traffic and 4.9% YoY in domestic traffic. While the company is still themost fundamentally sound airline in China, with diversified growth in differentroutes and good yield management track record, we think its earnings upside willlikely be capped by Cathay Pacific's weakness. Therefore, we maintain a Hold onAir China H shares. Meanwhile, we have a Sell rating on its A shares, given theirsignificant valuation premium over the H-shares. Our target price for Air China isbased on 1.05x FY18E P/BV, marginally below its mid-cycle valuation since 2011.    We believe the valuation benchmark is prudent, given 9% FY18E core ROE, whichis slightly below the historical average since 2011. Key downside risks includeexcessive new capacity on international routes, and weakening in Cathay Pacific'searnings contribution. Key upside risks are the reverse of the aforementionedpoints.

声明：如本站内容不慎侵犯了您的权益，请联系邮箱：wangshiyuan@epins.cn 我们将迅速删除。