- Buy Entry – 4.5 Target – 5.0 Stop Loss – 4.3
- China Southern Airlines Company Limited is principally engaged in the operation of civil aviation, including the provision of passenger, cargo, mail delivery and other extended transportation services. The Company operates through two business segments, including Airline Transportation segment and Other segment. Airline Transportation segment consists of passenger and cargo and mail operations. Other segment includes hotel and tour operation, ground services, cargo handling and other miscellaneous services. The Company also provides services of general aviation and aircraft maintenance.
- Move on to post-COVID era. With more than 50% of the population vaccinated in major economies, and potential oral medicine of COVID treatment, countries are expected to fully open their borders in 2022. China has been insisting on a “zero infection” policy and adopting the most draconian quarantine measures on visitors. However, it has to normalise international travelling eventually when other countries open borders and adapt to coexist with the COVID virus. After all, isolation deters economic recovery and growth. The second largest economy with the largest population in the world cannot afford to maintain the absolute zero COVID patient at the price of reduction in travelling for a long term. The normalisation of travelling will be one of the main themes next year.
- High oil prices are another headwind but could correct for a while. The rally of oil price is expected to extend further. However, this is a secondary negative impact given that the air passenger volume is much lower compared to pre-COVID levels. The rally of oil prices is sharp and speedy. Hence, there could be some correction as oil is now becoming a crowded trade.
- Updated market consensus expects loss per share to narrow to RMB0.33 in FY21 from RMB0.77 in FY20, and eventually to turn profitable with an EPS of RMB0.176/0.267 in FY22/23. Bloomberg consensus average 12-month target price is HK$5.61.