What's new
　　On May 22, AviChina Industry & Technology’s Board passed aresolution granting the repurchase of a maximum 624.5mn H-shares,representing 10% of total issued H-shares. Since May 26, thecompany has repurchased 4.5mn shares for six consecutive days at acost of HK$15.3mn. Since the announcement of the plannedrepurchase on May 22, the share price has risen by 16.8%, while theHang Seng Index (HSI) has increased 4.6%.
　　Comments
　　The repurchase helps to enhance market confidence and increaseEPS; market gives positive feedback.
　　From January 1-May 22, 2020, the company's share price fell by8.83%, while the HSI fell by 18.66%. The CSI National DefenseIndustry Index rose 6.34%. The market performance of H-sharesand A-shares shows a state of divergence, in our opinion. Basedon the closing price of HK$3.17 on May 22, the total cost ofAviChina’s share buyback will be HK$2.0bn.
　　At end-2019, AviChina recorded cash and cash equivalents ofHK$14.6bn and current assets of HK$78bn, which is adequate tothe plan, in our view. The repurchased shares will be cancelledupon completion of the buyback. Assuming the companyrepurchases all 624.5mn shares, we estimate capital stock willfall by 10% and EPS will rise by 11%.
　　Since May 26, the company has repurchased 4.5mn shares forsix consecutive days at a cost of HK$15.3mn. AviChina’s totalturnover during these six days was HK$550.5mn. Since theannouncement of the planned repurchase on May 22, the shareprice has risen by 16.8% while the HSI has increased 4.6%; therepurchase has received positive market feedback.
　　According to the company announcement, the repurchase willbe subject to market conditions and no warranty is given as tothe timing, quantity or price of the repurchase. We will monitorthe company buyback’s progress and follow up with updates.
　　Valuation and recommendation
　　We keep our earnings forecast unchanged. The stock is trading at12.5x 2020e P/E and 10.5x 2021e P/E. We maintain an OUTPERFORMrating and target price of HK$4.27, offering 15% upside. Risks:
　　Volatility in the H-share market; uncertainties around orders anddeliveries of sub-segment.