Action 2013 net profit missed, with shrinking travel demand and FX losses.We cut our earnings forecast for Air China, downgrade toACCUMULATE and slash our TP by 24.3% to HK$5.30 (0.9xP/B). Reasoning 2013 results drop sharper than expected. Due to insufficient organicdemand and diversion from high-speed rail and expressways, AirChina recorded a slight increase of PLF (+0.27ppt) and a sharp declineof yield (-10.14%) in 2013, quite a tumble even after factoring in VATreform and the sliding fuel surcharge. External factors to weigh on earnings. CICC’s macro team cut its2014 China GDP growth forecast to 7.3% and adjusted its 2014renminbi exchange rate forecast from a 1.5% appreciation to a 1%depreciation. The previously expected moderate recovery in officialand business travel might not come, and even if ticket prices reboundfrom 2013’s low and falling oil prices reduce costs, this cannot offsetthe damage from FX losses. Earnings growth is likely to slow. Cheap valuation, the certain rebound of the international market,and some long-term catalysts mean we downgrade only toACCUMULATE. 1) Air China has the largest market share ofinternational routes and visa on arrival programs for Chinese citizenshave expanded from 18 countries to 45 countries, conducive tooutbound travel. It benefits from easing visa policy, limited supply andthe sustained popularity of US routes, which are an investment focusof Air China. It also has cost advantages in international fleets thanksto constant updates. 2) Integrated Beijing-Tianjin-Hebei developmentshould boost demand for official and business travel to and from theregion, and Air China has the largest market share here. SOE reformalso merits attention. Earnings forecast and valuation We cut 2014/15e net profit 49.6%/32.0% to Rmb3.21bn/4.72bn,representing -1.8%/+47.2% YoY and EPS of Rmb0.26/0.38. Risks Weak economic recovery; oil price spike; renminbi depreciation.

Investment positives Investment logic. Having engaged in helicopter services for threedecades, CITIC Offshore Helicopter Co. Ltd (COHC) is expected tobecome an integrated operator providing helicopter services, 4S andtraining services, driven by favorable general aviation policies. General aviation about to boom, likely led by helicopters. Favorable policies have always been the initial engine of generalaviation transportation, and China has launched a number of themover the past few years. Given the limited airport resources,helicopters are likely to grow ahead of fixed-wings thanks to theirlower requirements on facilities and flight communication. Existing business to grow faster and new business to be easilydeveloped. COHC mainly provides offshore helicopter oil services,where it has an oligopolistic market. Due to limited reserves of inlandoil & gas resources, the development of deep-water oil & gasresources in the South China Sea are inevitable. This should seeCOHC gain further market share and raise charges thanks to itslargest number of long-distance planes and major bases in Shenzhen. Inland general aviation transportation services and aviationmaintenance services – two new businesses – are still focused onhelicopters and hence are easily developed. The company is alsocapable of starting helicopter sales, sharing spare parts, and stafftraining. All of them are centered on helicopters, making it easy toachieve decent scale expansion and earnings growth. Financials Revenue is expected to grow 13.1%/13.9%/15.9% in 2013/14/15. We project the company to grow its revenue by 13.1%, 13.9% and15.9%, and EPS to be Rmb0.29, 0.35 and 0.44 in 2013, 2014 and2015 respectively Valuation and recommendation COHC is currently trading at 29.6x P/E and 2.1x P/B, more attractiveconsidering the possible release of more policies. We initiatecoverage with a BUY rating and target price of Rmb10.5. Risks Slow development of offshore helicopter oil services; slow progress inthe opening-up of low-altitude airspace; renminbi depreciation.