9M19 revenue +0.2% YoY. Net profit -2.5% YoY. Adjusted net profit +0.5% YoY. RPK +6.2% YoY. Passenger load factor was 81.4%, up 0.5ppt YoY. For 4Q19, as China and US are marching towards a “phase one” deal, we reiterate our view that we expect domestic demand to release. However, in the context of China-US trade frictions and unrests in Hong Kong, higher proportion of international and regional routes is a double-edged sword. For 4Q19, we remain cautiously optimistic. We factor in our house view of 2019E average Brent crude oil, and raise TP from HK$ 8.61 to HK$ 9.28, corresponding to 1.2x 2020E P/B. Maintain BUY.
- 9M19 revenue in line. For 9M19, operating revenue increased 0.2% YoY to RMB 103bn, representing 74%/72% of our/consensus original full-year estimates. Net profit decreased 2.5% YoY to RMB 6,762mn, representing 93%/84% of our/consensus original full-year estimates. Net profit in 3Q19 increased 4.4% YoY, benefitting from increase in other income and investment income. Adjusted net profit increased 0.5% YoY to RMB 6,557mn.
- Disappointing operating results. For 9M19, RPK increased 6.2% YoY, lower than major peers (CEA +10.4% YoY, CSA +9.2% YoY). Although third quarter is a traditional peak season for business, student and tourism travel, traffic in 3Q19 increased 5.6% YoY, down 3.8ppt YoY. RPK from international/regional routes in 3Q19 increased 4.4%/0.7% YoY, as compared with 12.7%/7.8% in 3Q18. ASK increased 5.6% YoY, lagging management guidance of 9-10% at the beginning of the year. Passenger load factor was 81.4%, up 0.5ppt YoY.
- Cautiously optimistic 4Q19 outlook. For 4Q19, as China and US are marching towards a “phase one” deal, we reiterate our view that we expect domestic demand to release. However, in the context of China-US trade frictions and unrests in Hong Kong, higher proportion of international and regional routes is a double-edged sword. For 4Q19, we remain cautiously optimistic.
- Valuation. We adjust 2019/20E revenue down 0.7%/1.5% to reflect lower-than-expected traffic growth. 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$64/b. We adjust 2019/20E net profit up by 20.6%/30.7%, and roll over TP to HK$ 9.28. Our TP corresponds to 1.2x 2020E P/B. The stock is currently trading at 0.9x 2020E P/B, lower than historical average of 1.2x. Maintain BUY.
