1H19 revenue +8.0% YoY; net profit -19.7% YoY. EBITDAR increased 14.5% YoY to RMB 18.1bn. For 2H19, the Company expects domestic demand to be released on National Day, and international demand to maintain double-digit growth. On the supply side, the Company maintains 11% YoY ASK growth guidance. We adjust net profit down 46.3%, and trim TP down to RMB 7.45. Maintain HOLD.
- 1H19 revenue +8.0% YoY; net profit -19.7% YoY. The Company announced 1H19 results. Total operating revenue increased 8.0% YoY to RMB 72.9bn, representing 46% of both our and consensus estimates. Passenger revenue increased 8.7% YoY to RMB 65.6bn, while cargo revenue decreased 2.0% YoY to RMB 4.4bn. Net profit decreased 19.7% YoY to RMB 1,682mn, representing less-than-a-third of both our and consensus estimates.
- Excluding effect of IFRS 16, decrease of profit for the period would narrow. As a result of the adoption of the new lease standard, total balance of lease liabilities amounted to RMB 124.8bn, increased 72.8% from YE18. Interest expense increased 87.2% YoY to RMB 2,876mn. Profit for the period decreased 27.8% YoY. Excluding this effect, interest expenses would be RMB 1,715mn, and decrease of profit for the period would narrow to 18.3% YoY. USDCNY on 1H19 was 6.87, vs 6.86 on YE18, foreign exchange loss was RMB 317mn, yet smaller as compared with RMB 471mn in 1H18.
- EBITDAR +14.5% YoY; fundamentals remained healthy. In 1H19, EBITDAR increased 14.5% YoY to RMB 18.1bn. RPK and ASK saw double-digit growth. RPK increased 10.4% YoY to 137.2bn. ASK increased 10.1% YoY to 166.0bn. Passenger load and yield remained stable. Passenger load factor was 82.65%, up 0.20ppt YoY. Passenger yield was RMB 0.48. Jet fuel costs mildly increased 6.4% YoY to RMB 20.6bn, representing 29.5% of total operating expenses. For 2H19, the Company expects domestic demand to be released on National Day, and international demand to maintain double-digit growth. On the supply side, the Company maintains 11% YoY ASK growth guidance.
- Valuation. We adjust net profit down 46.3%, and trim TP down to RMB 7.45. Our TP corresponds to 1.4x 2019E P/B. The stock is currently trading at 1.2x 2019E P/B, lower than historical average of 1.7x. Maintain HOLD.
