Morgan Stanley: Bullish on the upward cycle of the three major Chinese airline stocks, significantly raises target price.

Morgan Stanley's research report stated that the aviation industry, which began to improve cyclically in the fourth quarter of 2025, is likely to gain momentum in 2026 to 2027 and be driven by demand. Investor positions and confidence are still low, but the bank believes that price increases will boost market sentiment, so it has raised the target price of the aviation sector by an average of 42% and upgraded the ratings of the three major airlines' A shares to "hold". Morgan Stanley's target price for Air China Limited (00753) H shares has been raised from HK$8.11 to HK$10; China Eastern Airlines (00670) H shares have been raised from HK$4.31 to HK$8.10; China Southern Airlines (01055) H shares have been raised from HK$5.33 to HK$8.5. Morgan Stanley rates the H shares of the three major airlines in mainland China as "hold". The bank expects passenger load factors to improve by 1 to 2 percentage points annually, meaning airlines will have stronger pricing power. It is optimistic about the multi-year upward cycle driven by supply for Chinese airlines and believes that if pricing outperforms expectations, there is room for profit margin improvement. The bank forecasts that passenger revenue per kilometer will remain flat in 2026, then increase by 3% to 4% in 2027. Profit forecasts for 2027 are 17% higher than market consensus. Morgan Stanley estimates that for every 1 percentage point that passenger revenue per kilometer exceeds expectations, the three major airlines could see an average increase of approximately RMB 1.5 billion to RMB 1.7 billion in operating profit. Therefore, the bank has raised its pre-tax profit forecast for 2026 between 14% and 20%, and for 2027 between 11% and 12%.