BROKER CALL - Air China 'neutral' kept - Merrill Lynch


BEIJING (XFNews) - Merrill Lynch said it is keeping its "neutral" rating on Air China on healthy profit momentum and benefits from a likely further currency appreciation.

 "We maintain our 'neutral' rating on Air China," Merrill Lynch said in a note to investors.

 "The airline is comfortably the most profitable airline in China and capacity constraints at Beijing Airport continue to support pricing as competitors struggle to find slots." 

 The brokerage also said a strengthening local currency -- which will make both aircraft purchases and fuel imports relatively cheaper -- will further boost profit margins.

 "We expect the airline to benefit from both currency appreciation and reform of the jet fuel market, although this could be eroded by higher airport charges. Despite good fundamentals, the stock appears close to fair value and trades at a premium to its sector peers," Merrill said.

 The brokerage said it expects Air China to be the only major Chinese airline to report positive recurring net income for this year. It also forecast a five pct appreciation for the yuan this year.

 "Benign competition in Beijing, its higher proportion of business traffic and more international focus has enabled the airline to offset much of the impact of high fuel costs through pricing. We forecast recurring net income of 1.2 bln yuan in 2005 and 1.9 bln in 2006," the note said.

 Merrill estimated fair value for the stock at 2.75-2.95 hkd per share.
 Air China Ltd (HK 0753) closed up 0.025 hkd today at 2.6.
 (1 usd = 7.8 hkd; 8.1 yuan)

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