Our TP is HK$6.40, set at 1.9x 26E P/BV in relation to average 26E 23% core ROE, in-line with the historical trading relationship. We discount back 26E BVPS using 14.4% COE.

Key downside risks that could prevent the Air China H-share from achieving our target price include: 1) slower-than-expected international recovery; 2) surge in fuel prices; 3) worse-than-expected yield management; 4) fiercer than expected competition; 5) larger-than-expected RMB depreciation; 6) higher-than-expected unit cost with lower-than-expected aircraft utilization rate; and7) greater-than-expected air traffic diversion to high-speed rail.