HSBC says it's time to buy these 3 airline stocks in China

Published Mon, Aug 23 202112:37 AM EDT

Fresh outbreaks in China, new lockdowns and flight cancellations have taken a toll on Chinese airlines. Stocks of carriers have plunged — and HSBC says it's time to buy. HSBC has upgraded its call on all three airlines: Air China, China Eastern Airlines and China Southern Airlines. The carriers are listed on mainland and Hong Kong stock exchanges, and their shares have plunged 20% or more from their 2021 peaks. The biggest loser among the three major airlines was Air China's Hong Kong-listed shares, or H-shares, which lost about 32% from its 2021 peak in March. "Having covered industrial cyclicals for more than a decade, though, we can say with confidence that, when they're trading at these levels, these stocks usually stop reacting to any further negative news," HSBC analysts said in a note dated Aug. 12. They noted that airline stocks typically recover quickly when Covid restrictions are eased. "Similar to past instances, we expect these cyclical shares to rebound sharply as soon as China manages to contain this COVID-19 wave and domestic traffic recovers," the bank said. Cyclical stocks refer to those tied to the economic cycle — profits and stock prices for those companies tend to rise when the economy is doing well, and fall when the economy weakens. Here are HSBC price targets for the following airlines. A-shares are Chinese mainland companies listed in Chinese stock exchanges in Shanghai and Shenzhen, while H-shares are those trading on the Hong Kong Stock Exchange. Why HSBC is bullish on China's 'Big 3' HSBC expects China's "Big 3" airlines to perform well in the medium- and long-term because they are well-positioned to gain market share on domestic and international routes. Those airlines have enough money and can have a positive cash flow because of exposure to domestic routes and cargo business, the analysts said. The Big 3 airlines are poised to emerge stronger after Covid-19. HSBC Even if international air travel only reaches 50% of 2019 levels in 2023, the three carriers can generate double-digit return on equity, HSBC predicted. "The Big 3 airlines are poised to emerge stronger after Covid-19," analysts wrote. Looming risks Downside risks to the price targets incl