Investment 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].

Core Viewpoint - The aviation industry is experiencing a non-seasonal peak in ticket prices, driven by historically high passenger load factors, low growth in flight supply, and a continuous increase in passenger numbers [1] Group 1: Current Industry Phenomena - Ticket prices have turned positive since mid-September, attributed to high passenger load factors reaching 86.3% in September, the highest for this period since 2006 [1] - The domestic flight growth rate is below 1%, while passenger numbers continue to show resilient growth [1] Group 2: Industry Outlook - The supply-demand fundamentals are currently better than in 2019 and 2024, with a projected increase in passenger turnover of 10.3% and fleet size by 13.2% in 2024 compared to 2019 [2] - By the first three quarters of 2025, the supply-demand gap is expected to turn positive, with passenger turnover increasing by 19.3% compared to the same period in 2019 [2] Group 3: Demand Structure Improvement - Business travel is returning to an expansion phase, contributing to the overall improvement in demand structure, with the travel willingness index reaching 50.4% in September, indicating expansion [3] - Cross-border travel demand is growing faster than domestic demand, with international passenger numbers increasing by 20.3% year-on-year in the first nine months of 2025 [3] Group 4: Supply Constraints - Supply is constrained by maintenance issues and low growth in new aircraft deliveries, with significant recalls affecting existing fleet availability [4] - Major manufacturers like Boeing and Airbus are facing delivery backlogs, with Airbus having 8,698 aircraft and Boeing 6,579 aircraft pending delivery [4] - The actual delivery rates of major airlines have been below 50% of initial expectations for three consecutive years [4] Group 5: Cost Factors - Oil prices have been declining, with a year-on-year decrease of 11% from January to November, which is expected to reduce operational costs for airlines significantly [5]

Group 1 - The report highlights that the airline industry is experiencing a significant rebound, with ticket prices turning positive since mid-September, indicating a strong demand despite the traditional off-peak season [1][7][13] - The passenger load factor reached a historical high of 86.3% in September, the highest since 2006, and has continued to rise into October, reflecting robust demand [1][20][21] - The growth in passenger numbers is resilient, with domestic flight volume growth below 1%, while cross-border travel demand is increasing significantly [1][25][26] Group 2 - The supply-demand fundamentals are now better than in 2024 and 2019, with a 10.3% increase in passenger turnover and a 13.2% increase in fleet size projected for 2024 compared to 2019 [8][32][34] - Structural improvements in demand are noted, particularly in business travel, which has returned to an expansionary phase, and cross-border travel demand is outpacing domestic growth [2][42][48] - The supply side is constrained by maintenance issues and low growth in new aircraft deliveries, with significant recalls affecting existing fleet availability [3][56][61] Group 3 - The report indicates that the industry is at a turning point regarding supply-demand-price dynamics, with high elasticity expected as ticket prices rise [4][10][80] - Cost reductions are anticipated due to declining oil prices, which have decreased by 11% year-on-year, positively impacting airline operating costs [6][10] - Investment recommendations include a focus on major airlines such as Air China, China Southern Airlines, and China Eastern Airlines, as well as low-cost carriers like Spring Airlines, which are expected to benefit from improved operational efficiencies [6][10][80]