Is Air China (SEHK:753) Undervalued After Its Latest Traffic Update?

Why Air China’s latest traffic update matters for shareholders

Air China (SEHK:753) has just released detailed operating figures for September and the year to date, covering passenger traffic, cargo volumes and load factors that many investors use as a real-time health check for the airline.

The latest traffic release comes after a tough stretch for Air China’s shareholders, with the share price at HK$3.49 and a year-to-date share price return down 50.91%. This has contributed to a 1-year total shareholder return decline of 43.89%, which points to fading momentum despite the recent 1-day share price gain of 2.80%.

Scan other airline and transport stocks showing real operating momentum using the hand picked 611 high quality undiscovered gems that share some of the same demand drivers as Air China’s latest traffic update.

So is Air China’s sharp share price slide mostly sentiment washing through the stock after heavy losses, or does the latest traffic update hint that the business is mispriced on today’s valuation multiples?

Preferred price-to-sales multiple of 0.3x: Is it justified?

Valuation screens present Air China as inexpensive, with the stock trading on a P/S of 0.3x that appears low compared with both its own fair ratio and airline peers, even after a tough run for the share price.

The P/S ratio compares the company’s HK$3.49 share price to its revenue per share. It therefore focuses on how much investors are paying for each dollar of sales rather than profits, which is relevant here because Air China is still loss making, with net income of HK$2,250.61m in losses.

That low 0.3x P/S stands against an estimated fair P/S of 0.8x. This suggests the market is assigning a heavy discount to Air China’s revenue compared with the level indicated by the SWS fair ratio model if sentiment or fundamentals were to change.

Relative to other groups, the gap is even wider. Management is running a business that appears to trade at good value versus both the Asian Airlines industry average P/S of 0.6x and a peer average P/S of 2.1x. This shows the stock is priced at a steep discount to sector and peer group revenues.

Explore the SWS fair ratio for Air China.

Result: Price-to-sales of 0.3x (UNDERVALUED)

Still, Air China’s continued net loss and the wide gap between its current P/S and implied fair multiple could reflect persistent structural or balance sheet pressures.

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

Another view on Air China’s value

The first check on Air China focused on its low 0.3x P/S ratio, which suggested attractive pricing against sales. A second lens offers a different perspective. The SWS DCF model points to a future cash flow value of HK$16.72 per share versus today’s HK$3.49, which frames the stock as deeply undervalued on this metric. That sort of gap raises a sharper question for holders. Is the risk that the market is too pessimistic, or that the model is 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 194 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 this combination of sharp share price pressure and an apparently low valuation leaves you undecided, act quickly and test the thesis against the 3 key rewards and 1 important warning sign

Looking for more investment ideas beyond Air China?

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• Target potential value opportunities by scanning companies that combine quality fundamentals with lower pricing using the 194 high quality undervalued stocks.
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