We expect Chinese airlines to start strong in 2020. We expect positive sentiment in airline stocks mainly due to stabilizing RMB. We also see strong air travel pattern continuing in 2020 CNY. Counter-cyclical measures from the Chinese government indicate a preliminary recovery. Those factors should support air travel. We expect Air China to continue to benefit from cost side improvement, such as a low oil price environment and full year effect on reduction on contribution of civil aviation development funds. On the other hand, reform in domestic ticket price to support passenger yield with top routes continues to upward adjust.
Keep earnings forecast unchanged with shareholders’ profit to slightly reduce 3.7% yoy in 2019 but to rebound 17.3% yoy in 2020. We keep our earnings forecast unchanged as we think our forecast is still valid with a conservative expectation. We continue to expect ASK, RPK and passenger yield to continue a gradual recovery trend in 2020 and 2021. We expect oil price to continue to benefit airline operations. RMB exposure should be less impactful given our stable RMB assumption, at least in the short term.
We maintain investment rating as "Accumulate", but increase TP to HK$9.00 on upgraded valuation. Our TP represents 1.1x 2020 PBR and 1.06x 2021 PBR. We have upgraded our valuation due to the expected positive sentiment towards aviation industry as led by the stabilizing RMB environment and the coming strong air travel for CNY. We view the Company’s valuation as attractive as it is still below its long term average.Our valuation approximates the long term average and we believe it’s appropriate.