The Company announced 1H19 results on 30 Aug. 1H19 revenue +16.3% YoY. Net profit -6.4% YoY, representing 42%/37% of our/consensus full-year estimates. RPK +15.5% YoY, higher than industry growth of 9.9% (CEA +10.6%, CSA +10.4%, AC +6.6%). ASK +16.1% YoY, in line with guidance. The Company now holds 3.53% of CEA, and has achieved code sharing in all domestic routes with CEA. We believe that code sharing helps the Company broaden its destinations, and avoids competition between the two companies in the Shanghai market. We adjusted 2019-21E net profit down 9-44%, and trimmed TP to RMB 15.03. Our TP corresponds to 2.6x 2019E P/B. Maintain BUY.
- 1H19 revenue +16.3% YoY; net profit -6.4% YoY. Total operating revenue increased 16.3% YoY to RMB 8,061mn, representing 47%/48% of our/consensus full-year estimates. Net profit decreased 6.4% YoY to RMB 579mn, representing 42%/37% of our/consensus full-year estimates.
- Highest RPK growth; lowest unit cost. RPK increased 15.5% YoY to 17.1bn, higher than industry growth of 9.9% (CEA +10.6%, CSA +10.4%, AC +6.6%). ASK increased 16.1% YoY to 20.0bn, in line with management guidance at the beginning of the year. Passenger load factor remained at 85%. As in the case of peers, the Company’s take-off and landing expenses have risen, resulting in an increase in unit cost (operating cost per ASK). Unit cost increased 3.5% YoY to RMB 0.3794, yet still being the lowest as compared with CEA (RMB 0.4344), CSA (RMB 0.4213), and AC (RMB 0.4269).
- Code sharing with CEA helps the Company broaden its destinations. During the period, China Eastern Airlines’ non-public issuance of H shares has completed. The Company now holds 3.53% of the total issued share capital of CEA. In the first half, the Company conducted in-depth cooperation with CEA, and achieved code sharing in all domestic routes. Besides Shanghai, CEA has set up hubs in Beijing, Kunming, and Xi’an, to capture opportunities in the Beijing-Tianjin-Hebei area, Southeast Asia, and countries along the Belt and Road. We believe that code sharing will further help the Company broaden its destinations, and avoid competition between the two companies in the Shanghai market.
- Reiterate BUY. We adjusted 2019E net profit down 9.4%, and trimmed TP to RMB 15.03. Our TP corresponds to 2.6x 2019E P/B. The stock is currently trading at 2.1x 2019E P/B, lower than historical average of 3.12x. Upside potential 22.0%, maintain BUY.
