DBS has issued a research report stating that while fiscal year 2026 is expected to remain a challenging period for Chinese airlines, the recent significant correction in sector share prices has largely reflected the market's pessimistic outlook for the industry's short-term prospects.

The bank anticipates that China Eastern Airlines Corporation Limited (ASX: 600115) will still record a loss this year, although current valuations appear to have factored in most of the downside risks.

The report notes that while sector valuations now seem relatively reasonable, the possibility of further share price declines cannot be ruled out should the operating environment deteriorate significantly.

Consequently, DBS has upgraded its rating on the airline's stock to 'Hold', while keeping its target price unchanged at HK$2.9.