Middle East Tensions Drive Up Air Freight Rates, UBS Maintains Buy on China Eastern Logistics/Yiwu Commodity City

Overview

UBS released the April 2026 China Field Survey Series Report, with core focus on the impact of Middle East situation and fuel prices on relevant Chinese industries. The report covers two main targets, China Eastern Airlines Logistics and Yiwu Commodity City, both maintaining Buy rating. Core conclusion is: Middle East conflict led to air cargo capacity contraction and freight rate increases; although China Eastern Airlines Logistics faces significant fuel cost increases, it can partially transfer costs; Yiwu Commodity City saw high Q1 earnings growth but profit margins slightly under pressure. Meanwhile, UBS Quant team showed through company visit data and congestion factor analysis that investor interest rose in materials, durable consumer goods, medical device services sector in April, while tech hardware and automotive sectors dropped.

Core views

Impact of Middle East situation on air cargo: The report points out that 2026 Middle East conflict became a key variable, causing global air cargo capacity year-on-year decrease of 11.7% in March, where Middle East route import/export capacity dropped about 30%. Capacity contraction combined with rising oil prices pushed freight rates to stay high. On April 6th Shanghai export overall freight rate increased 28% compared to early March, 21% year-on-year. Asia-Pacific remains the main growth engine, 2025 Asia-Pacific air cargo demand grew 8.6% YoY. China Eastern Logistics Cost Transfer Ability: April domestic jet fuel ex-factory price soared 74% month-on-month, but company management stated it could transfer about 35% incremental cost pressure via fuel surcharges, freight rate adjustments, and hedging tools. 2025 Q4 Company Revenue/Net Profit increased YoY 10%/11%, all-cargo aircraft daily utilization reached 13.09 hours creating historic high, load factor maintained above industry-leading 70% level, dividend payout ratio kept at 40%. Yiwu Commodity City Performance: 2026 Q1 Revenue grew 45% YoY to 4.6 Billion CNY, Net Profit grew 23% YoY to 990 Million CNY, slightly below UBS expectations. Revenue growth mainly from stall location fees and Global Digital Trade Center supporting commercial street and office building revenue, but Gross Margin/Net Margin contracted 2.4/3.8 percentage points to 33.8%/21.6%, mainly impacted by low-margin Global Digital Trade Center supporting business. Investor Survey Heat Changes: UBS Quant team data shows April investor visit proportion month-on-month growth top three sectors were Materials, Durable Consumer Goods and Apparel, Medical Devices and Services; Tech Hardware and Equipment, Automotive and Parts visit proportion decreased most. Congestion factor shows Durable Consumer Goods and Medical Devices Services though visit increased still not overly congested, Tech and Semiconductor visit declined but congestion still high.

Analysis framework

UBS adopted multi-dimensional analysis methods in this report. First is field survey method, obtaining first-hand information by having transport team attend China Eastern Logistics results meeting, site visit to Yiwu Commodity City, this is UBS 'China Field' series core feature. Second is quantitative auxiliary analysis, UBS Quant Research team provided A-share company institutional field visit dataset and proprietary congestion factor (range -30 to 30, negative values indicate short selling congestion, positive values indicate long buying congestion), combining company visit data with congestion to judge investor interest shifts between sectors. Valuation methods, PE valuation used for China Eastern Logistics, maintained target price 23.10 CNY; DCF Cash Flow Discounting used for Yiwu Commodity City, WACC 7.7%, target price adjusted slightly from 21.64 CNY to 21.59 CNY, reflecting short-term earnings growth and long-term revenue structure potential adjustment leading to lower long-term growth forecast.

Methodology notes

• Valuation methodsPE/PEG valuation

  PE Valuation Method

  Report uses PE valuation method for China Eastern Logistics, i.e., determine target price by multiplying company earnings by reasonable PE multiple. This is common valuation method for cyclical industries such as Transportation, facilitates horizontal comparison of peer valuation levels.

• Valuation methodsDCF Cash Flow Discounting

  DCF Cash Flow Discounting Method

  Report uses DCF valuation method for Yiwu Commodity City, determining target price by forecasting company future free cash flows and discounting with WACC (Weighted Average Cost of Capital) 7.7%. DCF suitable for cash flow stable, business model mature real estate/commercial retail companies.

• Industry/Industrial Analysis FrameworkSupply-demand framework

  Air Cargo Supply/Demand Analysis

  Report uses supply/demand framework when analyzing air cargo market: Supply side look at capacity changes (Middle East conflict caused capacity contraction 11.7%), Demand side look at cargo volume growth (Asia-Pacific 8.6% YoY), supply/demand gap pushes freight rates up. This is core analysis paradigm for cyclical product industries.

• Quantitative/Factor/Portfolio Theory

  Congestion Factor Analysis

  UBS Quant team uses proprietary congestion factor (-30 to 30 points) to measure investor holding congestion degree, negative score indicates short selling congestion, positive score indicates long buying congestion. Combined with company visit data changes, can judge which sectors have expectation difference opportunities -- sectors with visit increase but congestion still low may have more allocation value.

• Company Fundamentals and Financial FrameworkOperating/Financial Leverage Analysis

  Cost Transfer Ability Analysis

  Report analyzes China Eastern Logistics ability to cope when facing fuel cost increases, assesses company can transfer about 35% cost pressure via fuel surcharges, freight rate adjustments, hedging. This belongs to operating leverage analysis category, helping judge company earnings resilience under cost shocks.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• China Eastern Airlines Logistics (601156.SS)

  Benefit: Middle East conflict leads to air cargo capacity contraction, freight rates rise, company can transfer part fuel cost pressure

  Strengths

  Holds largest B777 order book in China, 2025 all-cargo aircraft daily utilization 13.09 Hours historic high, load factor 70%+ industry leading, dividend payout ratio 40% stable

  Weaknesses

  Fuel cost large increase (April MoM 74%) only transfer approx 35%, remaining cost pressure needs self-consumption

  Comparison

  Report did not expand on horizontal comparison with other air cargo companies

  Risks

  Geopolitics worsening, Macro slowdown, Epidemic, Other operators cargo capacity growth leading to intensified competition, Fuel price further skyrocketing

• Yiwu Commodity City (600415.SS)

  Benefit: Q1 earnings high growth, Global Digital Trade Center construction advancing, plans to increase dividend payout ratio

  Strengths

  Q1 Revenue 4.6 Billion CNY (+45% YoY), Net Profit 990 Million CNY (+23% YoY), Global Digital Trade Center attracting industry leaders, plans to introduce International Brand Management Hotel Properties

  Weaknesses

  Q1 Gross Margin/Net Margin contracted 2.4/3.8 percentage points, impacted by low-margin Global Digital Trade Center supporting business

  Comparison

  Report did not expand on horizontal comparison with other Commercial Retail companies

  Risks

  Macro weakness leading to Yiwu Market Traffic and GMV growth slowdown, Rent increase below expectations, US Tariff increase exceeding expectations, Cross-border E-commerce and Payment business barrier lowering leading to intensified competition

Key data

• April domestic jet fuel ex-factory price MoM change74%Short-term fuel cost significantly increased
• China Eastern Logistics Cost Transfer RatioApproximately 35%Via fuel surcharges, freight rate adjustments and hedging tools
• March global air cargo capacity YoY change-11.7%Capacity contraction caused by Middle East conflict
• Shanghai Export Freight Rate Increase Early Apr vs Early Mar28%Capacity contraction pushed freight rates up
• Shanghai Export Freight Rate YoY Increase21%April 2026 vs April 2025
• China Eastern Logistics 2025Q4 Revenue YoY10%Significant recovery
• China Eastern Logistics 2025Q4 Net Profit YoY11%Significant recovery
• China Eastern Logistics 2025 All-Cargo Aircraft Daily Utilization13.09 HoursHistoric high
• China Eastern Logistics Load Factor70%+Industry leading level
• China Eastern Logistics Dividend Payout Ratio40%2024-2026 guidance 30%-50%
• Yiwu Commodity City 2026Q1 Revenue4.6 Billion CNYIncreased 45% YoY
• Yiwu Commodity City 2026Q1 Net Profit990 Million CNYIncreased 23% YoY
• Yiwu Commodity City 2026Q1 Gross Margin33.8%Contracted 2.4 percentage points
• Yiwu Commodity City 2026Q1 Net Margin21.6%Contracted 3.8 percentage points
• 2025 Global Air Cargo Demand Growth4.2% YoYIATA data
• 2025 Asia-Pacific Air Cargo Demand Growth8.6% YoYMain growth engine
• China Eastern Logistics Target Price23.10 CNYPE valuation, maintain Buy
• Yiwu Commodity City Target Price21.59 CNYDCF valuation, WACC 7.7%, maintain Buy

Impact & implications

For China Eastern Logistics, report considers capacity contraction brought by Middle East situation is short-term positive, supports freight rates staying high; company cost transfer ability strong, can alleviate fuel price increase pressure; mid-long term view, company holds largest B777 order book in China, maintaining competitiveness expected via increasing daily utilization (Target 14-15 Hours vs Current 13 Hours), developing high value-added business (Cross-border E-commerce, Pharma Cold Chain, Fresh Food Supply Chain) and digital intelligence initiatives. For Yiwu Commodity City, short-term earnings growth strong but margin pressure, future catalysts include 7th/8th Market Commercial Zone operation start date confirmed, Cosmetics/Supplements/Drugs Import Qualification Approved and Large-scale Operation Start, H-share Listing Progress; Company plans continue to increase dividend payout ratio to return to shareholders. Overall, report believes both targets still have allocation value in current environment, but need to monitor risks such as geopolitical politics, macroeconomics, competitive landscape.

Risks

• Geopolitical environment deterioration
• Macro slowdown
• Epidemic recurrence
• Other operators cargo capacity growth leading to intensified competition, freight rates and profitability decline
• Fuel price further skyrocketing harming company profit margins
• Yiwu Market Traffic and GMV growth slowdown due to macro weakness
• Rent increase below expectations
• US Tariff increase exceeding expectations
• Cross-border E-commerce and Payment business barrier lowering leading to intensified market competition

What to watch

• 7th/8th Market Commercial Zone operation start date confirmation
• Cosmetics, Supplements, Drugs Import Qualification Approved and Large-scale Operation Start
• Yiwu Commodity City H-share Listing Progress
• Progress of China Eastern Logistics daily utilization increase to 14-15 Hours
• Middle East situation evolution continuous impact on air cargo capacity
• Continuous changes of Investor Survey Heat between sectors