TravelSky Technology's stock is experiencing a decline.

TRAVELSKY TECH (HKEX: 00696) shares fell nearly 3% in recent trading, dropping 2.75% to HK$8.85 with a turnover of HK$19.15 million.

Analyst Downgrade and Concerns

A recent research report from Morgan Stanley has prompted the sell-off. The report acknowledges that China's reopening has supported a trend of profit growth for the company.

However, it warns that under macroeconomic challenges, traffic growth could decelerate by 2026. Furthermore, slower-than-expected growth in foreign airline traffic is dragging down average selling prices.

Impact on Profit Margins

A key concern highlighted is that inflationary pressures on labor costs may slow the pace of margin recovery.

Revised Earnings Forecasts

In response to these factors, Morgan Stanley has cut its earnings per share forecasts for TravelSky Tech. The estimates for 2026 and 2027 were reduced by 7.6% and 8.6%, respectively.

This revision reflects anticipated softer revenue growth due to weak air travel demand amid global energy market disruptions. The firm also initiated a 2028 EPS forecast of 0.88 yuan.

Valuation Implications

Morgan Stanley's analysis suggests that the weakening growth outlook from 2026 to 2028 and beyond, coupled with lower-than-expected shareholder returns for fiscal year 2025 and a slight adjustment to dividend payout ratio assumptions, has led to a greater decline in the company's fundamental per-share value than the cut in earnings forecasts alone would imply.

This indicates a reduction in the target valuation multiples applied to the stock.