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　　In November, Air China’s revenue passenger kilometer (RPK) andavailable seat kilometers (ASK) rose 3.9% and 4% YoY, and passengerload factor (PLF) fell 0.1ppt YoY to 79.5%. In 11M19, RPK and ASKgrew 5.7% and 5.1% YoY, and PLF climbed 0.4ppt YoY to 81.2%.
　　Comments
　　Major net aircraft addition in November; YoY capacity expansionaccelerating MoM. Air China introduced seven A320 aircraft inNovember and retired one B737-800 aircraft, implying net addition ofsix aircraft, the fastest monthly growth in 2019. ASK rose 4% YoY inNovember, compared to 2% in October. International ASK rose 3.9%YoY in November versus 1.4% in October due possibly to acceleratingcapacity expansion for Japanese routes. CAPA data shows that ASKfor Japanese routes increased 38% YoY in November for Air China andShenzhen Airlines. Regional ASK fell 9.4% YoY versus -3.8% in October.
　　PLF saw slight YoY fall in November, mainly due to regional routes.
　　November PLF fell 0.1ppt YoY to 79.5%, with domestic PLF down0.2ppt to 81%, international PLF up 0.8ppt to 77.8%, and regional PLFdown 7.5ppt (vs. -8.3ppt in October).
　　Valuation lower than historical average; numerous catalysts forshare prices: 1. airfare deregulation is advancing steadily. Air Chinahas raised full-price economy-class airfares for routes such asBeijing-Chengdu. 2. the Chinese New Year holiday will begin earlier in2020 than in 2019, which may boost supply and demand growth inJanuary/February 2020. 3. FX and oil risks are easing. CICCeconomists expect RMB/USD to remain flat YoY in 2020 vs.
　　depreciation of 2.7% in 2019. Narrowing FX loss may enhance netprofit by Rmb1.3bn. The CICC Commodities team expects averageBrent oil price to drop US$5–8/bbl to US$55.8/bbl, which mayenhance net profit by Rmb2–3bn.
　　Valuation and recommendation
　　Air China A and H are trading at 1.2x and 0.9x 2020e P/B. Maintain2019e–2020e earnings forecasts at Rmb7.738 and Rmb9.733bn.
　　Maintain OUTPERFORM on Air China A and H-shares with TP atRmb11.10 (1.5x 2020e P/B with 24.3% upside) and HK$9.20 (1.1x2020e P/B with 18.3% upside).
　　Risks
　　Disappointing air travel demand; RMB depreciation against USD.