Citigroup Rates China Eastern "Buy / High Risk" on Air China Tie-Up
Feb. 04, 2008
Citigroup has rated the Hong Kong-listed China Eastern Airlines (CEA) at "buy/high risk", on the strong possibility of a tie-up with Air China.
A stake acquisition in CEA by Air China "is the best option for a turnaround of its strategic, operational and financial weakness and to leverage its dominant position in Shanghai," Citigroup said in a note to investors.
CEA's management remains hostile to the acquisition, but Citigroup still believes that it will take place, and that it will have benefits for both companies.
The company is likely to remain shielded from the impact of a US recession, with only 2.5 pct of its capacity used in flights to the US, but if a downturn in the world economy leads to a "hard landing" in China, airline stocks could suffer, Citigroup said.
Citigroup has cut its target price for CEA to HK$7.3 from HK$7.5.
The company's shares last traded at HK$5.5.