The Company announced 1H19 results on 30 Aug. 1H19 revenue +7.6% YoY; net profit -14.8% YoY, representing 29%/31% of our/consensus full-year estimates. EBITDAR increased 7.2% YoY to RMB 16.2bn. RPK increased 10.6% YoY, higher than industry growth of 9.9% (CSA +10.4%, AC +6.6%). ASK increased 10.4% YoY, in line with guidance. For 2H19, we expect the marginal impact of China-US trade friction on international travel demand to decline, and domestic demand will pick up after the National Day. We believe the Company will manage to achieve ASK guidance i.e. 10% YoY growth. We adjusted 2019-21E net profit down by 34-52%, and trimmed TP to RMB 5.74. Maintain HOLD.
- 1H19 revenue +7.6% YoY; net profit -14.8% YoY. Total operating revenue increased 7.6% YoY to RMB 62.3bn, representing 46%/48% of our/consensus full-year estimates. Passenger revenue increased 9.2% YoY to RMB 53.6bn, while cargo revenue decreased 0.2% YoY to RMB 1.7bn. EBITDAR increased 7.2% YoY to RMB 16.2bn. Foreign exchange loss was RMB 588mn, greater as compared with RMB 196mn in 1H18. Net profit decreased 14.8% YoY to RMB 1,941mn, representing 29%/31% of our/consensus full-year estimates. During the period, the Company’s has completed non-public issuance of H shares. Juneyao Airlines now holds 3.53% of the total issued share capital of the Company.
- Highest RPK growth among major peers. RPK increased 10.6% YoY to 108.7bn, higher than industry growth of 9.9% (CSA +10.4%, AC +6.6%). ASK increased 10.4% YoY to 131.5bn, in line with management guidance at the beginning of the year. Passenger load and yield remained stable. Passenger load factor was 82.66%, up 0.19ppt YoY. Passenger yield was RMB 0.49. Jet fuel costs increased 9.0% YoY to RMB 16.6bn, representing 29.1% of total operating expenses. Unit cost (operating cost per ASK) decreased 1.3% YoY to RMB 0.4344 (CSA -2.7%, AC -4.1%).
- Positive 2H19 outlook. For 2H19, we expect the marginal impact of China-US trade friction on international travel demand to decline, and domestic demand will be released after the National Day. The Company expects ASK to increase by 10% YoY. We believe the Company will manage to achieve ASK guidance for the whole year.
- Valuation. We adjusted 2019E net profit down by 36.2%, and trimmed TP to RMB 5.74. 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 2.16x. Upside potential 13.2%, maintain HOLD.
