The Company announced 3Q19 results. 9M19 revenue +6.3% YoY, in line with our/consensus estimates. Net profit -2.7% YoY. Adjusted net profit -8.0% YoY. RPK +10.4% YoY, highest among major peers. Passenger load factor was 82.6%, down 0.3ppt YoY. For 4Q19, as China-US are marching towards a “phase one” deal, we reiterate our view that we expect domestic demand to release. We factor in our house view of 2019E average Brent crude oil, and roll over TP to RMB 6.86, corresponding to 1.5x 2019E P/B. Upgrade to BUY.
- 9M19 revenue in line; net profit decline narrowed due to other income. For 9M19, operating revenue increased 6.3% YoY to RMB 93.4bn, representing 79%/74% of our/consensus full-year estimates. Net profit decreased 2.7% YoY to RMB 4,367mn, representing 103%/91% of our/consensus full-year estimates. Net profit in 3Q19 increased 9.8% YoY, benefitting from 30.5% YoY increase in other income. Adjusted net profit decreased 8.0% YoY to RMB 3,893mn.
- Highest RPK growth among major peers. For 9M19, RPK increased 10.4% YoY, higher than major peers (CSA +9.2% YoY, AC +6.2%). Third quarter is a traditional peak season for business, student and tourism travel. Traffic in 3Q19 increased 11.0% YoY, as compared with 6.8% in 3Q18. ASK increased 10.9% YoY, in line with management guidance at the beginning of the year. Passenger load factor was 82.6%, slightly down 0.3ppt YoY.
- Positive 4Q19 outlook. For 4Q19, as China-US trade negotiation is inching towards a “phase one” deal, we reiterate our view that we expect domestic demand to release. And we believe the Company will achieve 10% YoY increase in ASK for the whole year.
- Valuation. We adjust 2019E revenue up 1.4% to reflect increase in other income. After drone attack on two Saudi Aramco’s oil facilities, production resumed faster than expected, our house trimmed 2019E average Brent crude oil to US$64/b. We adjust 2019/20E net profit up by 59.4%/74.6%, and roll over TP to RMB 6.86. Our TP corresponds to 1.5x 2019E P/B. The stock is currently trading at 1.1x 2019E P/B, lower than historical average of 2.2x. Upgrade to BUY.
