<P><FONT size=4>MS 摩根：中国国航研究 报告（英文）</FONT></P>
<P><FONT size=4> Air China LimitedLowering Price Target andEarnings Estimates</FONT></P>
<P><FONT size=4>March 21, 2007 15页</FONT></P>
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<P><FONT size=4>HK$5.25 from HK$5.53 on a 6%-9% cut to our reported<BR>earnings for F2007-08e. As our price target indicates<BR>8% downside potential from the current level, we<BR>maintain our Equal-weight rating on the stock. While we<BR>believe Air China is the best Chinese airline in our<BR>coverage universe given its clear long-term strategy and<BR>good market position, we believe the valuation is too rich<BR>to chase the stock now. We would become more bullish<BR>on the stock if the price were to correct to below 8.0x<BR>EV/EBITDA or 1.6x P/B multiples, what we consider to<BR>be a more attractive entry point.<BR>What's New: Air China released surprising F2006<BR>results on March 20, 2007. Reported EPS of Rmb0.26<BR>was below our and market consensus expectations by<BR>16%-13%. Higher-than-expected cost pressures (+23%<BR>yoy or +17% ex-jet fuel) remind us not to be overly<BR>optimistic on the operational performance of Chinese<BR>airlines, even including the best-managed players. We<BR>remain concerned about high valuations amid an<BR>increasingly competitive environment for most Chinese<BR>airlines (for details, see our note: China Aviation –<BR>Difficult to Fly on Heavy Valuations, March 13, 2007).<BR>Implications: Our revised price target of HK$5.25 is<BR>predicated on 9.5x 2007e EV/EBITDA, which translates<BR>into 2.0x P/B and 18.3x P/E on our 2007 estimates, and<BR>implies premiums of 27%-73% to major Asia-Pacific<BR>carriers such as Singapore Airlines (SIA) and Cathay<BR>Pacific (CPA).<BR>Morgan</FONT></P>