Air China (SEHK:753) Expands Its Airbus Fleet, Is The Stock Undervalued?

Air China (SEHK:753) has drawn fresh attention after agreeing to purchase 15 Airbus A350-900 and 40 Airbus A320NEO series aircraft, a fleet expansion that directly affects capacity planning and long term capital commitments.

See our latest analysis for Air China.

The Airbus purchase agreements land at a time when Air China’s share price has been under pressure, with the stock at HK$4.31 and a year to date share price decline of 39.38% alongside a 1 year total shareholder return decline of 17.75%. This points to weaker recent momentum despite short term gains.

If this aviation move has your attention, it could be a good moment to see what else is taking off in related areas and check out 55 AI infrastructure stocks

Air China is committing to a larger, newer fleet while the share price is still under pressure. Does that combination leave more upside potential than downside risk for new buyers at today’s levels?

Preferred Price-to-Earnings of 38.3x: Is it justified?

Air China currently trades on a P/E of 38.3x, while our estimate of its fair P/E is 57.5x and the shares closed at HK$4.31.

The P/E multiple compares the company’s share price to its earnings per share and is a quick way to see how the market prices those earnings. For an airline with recently restored profitability and forecast earnings growth, this ratio is often a key focus for investors who want to see what expectations are built into the current share price.

Here, the Air China P/E of 38.3x sits above both the Asian Airlines industry average of 10.9x and the peer average of 24x. That suggests the market is placing a richer valuation on its earnings than on many competitors. However, the estimated fair P/E of 57.5x is higher again, which points to a valuation level that the market could move towards if the underlying assumptions play out.

Explore the SWS fair ratio for Air China

Result: Price-to-Earnings of 38.3x (OVERVALUED)

However, Air China still faces risks if earnings soften or if fresh capacity and capital spending weigh on returns more than the current P/E implies.

Find out about the key risks to this Air China narrative.

Another View On Air China’s Value

The P/E discussion is only one lens. Our DCF model suggests a fair value of HK$11.76 per share, compared with Air China’s current price of HK$4.31. On that basis the stock appears significantly undervalued. This raises a key question: is the market discounting future cash flows too heavily, or is the model too optimistic?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Air China for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 254 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

If the mix of pressure and potential around Air China feels finely balanced, this is a good moment to check the data yourself and move quickly. To weigh up both sides of the story in one place, review the 3 key rewards and 2 important warning signs

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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