01055 Overview

Market Performance: The HSI fell by 2.1% to close at 26,059, with significant declines in the HSCEI and HSTECH, while total market turnover reached $357.679 billion.

Oil and Gold Stocks Rise: Oil prices increased, boosting stocks like PETROCHINA and CNOOC by over 4%, while gold prices also rose, positively impacting companies such as SD GOLD and ZHAOJIN MINING.

Airlines and Financials Decline: Airlines faced losses due to disruptions in Middle East routes, with CHINA SOUTH AIR and CHINA EAST AIR dropping over 8%, while major financial institutions like HSBC and BOC HONG KONG also saw declines.

Chinese Developers and Insurers Struggle: Chinese developers like SUNAC and CHINA VANKE experienced significant drops, while insurers and brokers also faced losses, reflecting broader market concerns.

Airline Industry Outlook: Morgan Stanley predicts a multi-year cyclical improvement in the airline industry, gaining momentum in 2026-2027 due to increased demand, despite low investor confidence.

Target Price Increases: The broker raised target prices for the airline sector by an average of 42% and upgraded the A-shares of three major airlines to Overweight.

Passenger Load Factor Improvement: An estimated annual improvement of 1-2 percentage points in the passenger load factor (PLF) suggests stronger pricing power for airlines.

Optimistic Profit Margin Potential: Morgan Stanley maintains an optimistic view on the supply-driven upcycle for Chinese airlines, indicating potential upside for profit margins if pricing exceeds expectations.

Airline Ticket Policy Update: Air China, China Eastern Airlines, and China Southern Airlines have announced a new policy allowing free changes or refunds for tickets issued before January 26, 2026, for flights to, from, or transiting through Japan.

Initial Policy Scope: The free change and refund policy was initially limited to flights scheduled before March 28, 2026, but has now been expanded to include a broader range of tickets.

Market Performance: The Hang Seng Index (HSI) fell by 76 points (0.3%) to close at 26,487, while the Hang Seng Tech Index (HSTI) and the Hang Seng China Enterprises Index (HSCEI) also experienced declines.

Active Heavyweights: Major stocks like Xiaomi, Tencent, and Meituan saw declines, with Xiaomi dropping 2.7% and Tencent down 1.5%, while Ping An was the only heavyweight to gain, increasing by 0.9%.

Notable Movers: Pop Mart and China Life were among the top gainers, with Pop Mart rising 9.1% and China Life up 4.3%, while Wuxi Apptec and BYD Company faced significant losses, dropping 4.1% and 3.7%, respectively.

Short Selling Activity: The short selling ratios for several stocks were notable, with BYD Company having a ratio of 21.25% and Sunny Optical at 23.49%, indicating high investor skepticism towards these stocks.

Positive Outlook for Asia-Pacific Airlines: BofA Securities projects strong airline profits in 2026 due to high ticket prices, healthy demand, improved cargo fundamentals, and potential oil supply surplus benefits.

Target Price Adjustments for Airlines: BofA raised target prices for several airlines, including CHINA EAST AIR to HKD2.9 (Underperform), CHINA SOUTH AIR to HKD5.92 (upgraded to Neutral), and AIR CHINA to HKD8.3 (upgraded to Buy).

Operational Performance: CHINA SOUTH AIR reported a 6.6% increase in ASK and an 8.3% increase in RPK for 2025, with a passenger load factor of 85.7%, marking a new historical high.

Profit Forecasts: Huatai Securities raised its net profit forecasts for CHINA SOUTH AIR for 2025-2027 by 59%, 42%, and 29%, projecting profits of RMB1.023 billion, RMB8.573 billion, and RMB11.035 billion, respectively.

Target Price Adjustments: The broker increased target prices for CHINA SOUTH AIR's A-/H-shares from RMB8.7/$6.3 to RMB9.8/$7.6 while maintaining a Buy rating.

Future Valuation: Huatai Securities expects the 2026 BPS to be RMB2.45 and estimates a FY2026 PB ratio of 4x/2.8x for the airline's shares.