Huachuang Securities·2026-01-04 12:25Investment Rating - The report maintains a "Buy" rating for China National Aviation Holding Company (China National Airlines) with a target price of 11.8 CNY / 10.0 HKD, compared to the current price of 9.37 CNY / 7.11 HKD [1][12]. Core Viewpoints - The aviation sector is expected to enter a significant bullish phase due to multiple factors, including supply constraints and improving demand dynamics [5][9]. - The report highlights that the airline industry is experiencing a structural improvement in demand, with a notable increase in international travel compared to domestic travel [9][10]. - China National Airlines is positioned to benefit from its superior resource endowment and customer base, which is less sensitive to price changes, thus showing strong pricing power [11][12]. Summary by Sections 1. Industry Overview - The report anticipates a low growth rate in aircraft imports in China, with a projected net increase in the industry of around 3% from 2025 to 2027 [9][28]. - Demand for air travel is improving, with domestic passenger volume increasing by 3.8% and international passenger volume rising by 20% year-on-year from January to November 2025 [9][10]. - The industry is experiencing high seat occupancy rates, with an average of 85.2% in the first eleven months of 2025, indicating strong pricing elasticity [10][22]. 2. Company Analysis: China National Airlines - China National Airlines has the highest pricing elasticity and the strongest ability to increase prices within the industry, which is expected to lead to superior performance in a bullish market [11][12]. - The company benefits from a well-distributed international route network, particularly in transcontinental routes to Europe and North America, which are expected to recover more significantly [11][12]. - Compared to Delta Airlines, China National Airlines is gradually closing the gap in scale but still has room for improvement in profitability, with current net profit margins at 6-8% compared to Delta's over 10% [11][12]. 3. Financial Projections - The report forecasts a significant increase in net profit for China National Airlines, projecting a return to profitability with net profits of 8.6 billion, 69.3 billion, and 100.5 billion CNY for 2025, 2026, and 2027 respectively [12]. - The expected earnings per share (EPS) for 2026 and 2027 are projected to be 0.4 CNY and 0.58 CNY, with corresponding price-to-earnings (PE) ratios of 24 and 16 [12]. - The target market capitalization for China National Airlines is estimated at 230.7 billion CNY, indicating a potential upside of 41% from the current valuation [12].