1H19 revenue +1.6% YoY; net profit -9.5% YoY. EBITDAR increased 2.9% YoY to RMB 17.9bn. RPK growth was lower than industry, and ASK growth was less than guidance. For 2H19, the Company expects domestic demand to be released after the National Day, and domestic/international/regional ASK to increase by 10%/1%/7% YoY respectively in 2H19. We adjust 2019E net profit down 36.9%, and trim TP to RMB 9.47. Maintain BUY.
- Domestic demand to be released in 2H19. The Company's 1H19 ASK growth was less than guidance, mainly due to demand fluctuations, runway maintenance, and air traffic control etc. For 2H19, the Company expects domestic demand to be released after the National Day, and international demand to maintain. On the supply side, the Company expects domestic/international/regional ASK to increase by 10%/1%/7% YoY respectively in 2H19.
- Disappointing traffic business; effective cost control. RPK increased 6.6% YoY to 114.8bn, lower than industry growth of 9.9%. ASK increased 5.9% YoY to 141.7bn, less than management guidance at the beginning of the year (+9-10% YoY). Passenger load and yield remained stable. Passenger load factor was 80.99%, up 0.51ppt YoY. Passenger yield was RMB 0.52. Jet fuel costs slightly increased 0.2% YoY to RMB 17.6bn, representing 29.1% of total operating expenses. Unit cost (operating cost per ASK) decreased 0.67% YoY to RMB 0.4269.
- 1H19 revenue +1.6% YoY; net profit -9.5% YoY. The Company announced 1H19 results. Total operating revenue increased 1.6% YoY to RMB 67.2bn, representing 46%/49% of our/consensus estimates. Passenger revenue increased 5.2% YoY to RMB 59.9bn, while cargo revenue decreased 25.7% YoY to RMB 5.5bn. EBITDAR increased 2.9% YoY to RMB 17.9bn. Foreign exchange loss was RMB 119mn, smaller as compared with RMB 518mn in 1H18. Net profit decreased 9.5% YoY to RMB 3,144mn, representing 27%/30% of our/consensus estimates. The new lease standard reduced profit by ~RMB 180mn.
- Valuation. We adjust 2019E net profit down 36.9%, and trim TP to RMB 9.47. Our TP corresponds to 1.5x 2019E P/B. The stock is currently trading at 1.3x 2019E P/B, lower than historical average of 1.64x. Maintain BUY.
