UBS lifts target price of China Eastern H-share, but reiterates 'sell' rating

Upon approval to China Eastern Airlines' (CEA.NYSE; 00670.HK; 600115.SH) merger plan with Shanghai Airlines (500591.SH) by their shareholders last Friday, UBS up adjusted the target price of China Eastern's H-shares from one Hong Kong dollar to 1.3 Hong Kong dollars.

The management of China Eastern expects the merger to be completed by the end of this year after it gets approval from China Securities Regulatory Commission (CSRC).

The investment bank deems that the improvement in sales and management after the merger will help boost the share price of China Eastern.

It meanwhile forecasts China Eastern to make ends meet this year thanks to the profit-making in the first half year and the income obtained from its jet fuel hedging businesses.

But as the current valuation of China Eastern is already at 3.4 times of its predicted P/B ratio for next year, which is overvalued remarkably, UBS reiterates its 'sell' rating for the airline company.

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