9M19 revenue +7.1% YoY. Net profit -2.3% YoY. Adjusted net profit -1.6% YoY. RPK +9.2% YoY. Passenger load factor was 83.0%, down 0.2ppt 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. And we believe the Company will achieve 10% YoY increase in ASK for the whole year. We factor in our house view of 2019E average Brent crude oil, and raise TP from RMB 7.45 to RMB 7.63, corresponding to 1.5x 2020E P/B. Maintain HOLD.
- 9M19 revenue in line. For 9M19, operating revenue increased 7.1% YoY to RMB 117bn, representing 78%/75% of our/consensus previous full-year estimates. Net profit decreased 2.3% YoY to RMB 4,078mn, representing 125%/89% of our/consensus previous full-year estimates. Net profit in 3Q19 increased 17.2% YoY, benefitting from increase in other income and fair value gains. Adjusted net profit decreased 1.6% YoY to RMB 3,601mn.
- Solid operating results; positive 4Q19 outlook. For 9M19, RPK increased 9.2% YoY, lower than CEA (+10.4% YoY), but higher than AC (+6.2% YoY). Third quarter is a traditional peak season for business, student and tourism travel. Traffic in 3Q19 increased 11.1% YoY, slightly down 2.8ppt YoY, mainly due to unrests in Hong Kong. RPK from regional routes decreased 4.2% YoY in 3Q19, as compared with 15.7% increase in 3Q18. ASK increased 9.4% YoY, largely in line with management guidance at the beginning of the year. Passenger load factor was 83.0%, down 0.2ppt 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. And we believe the Company will achieve 10% YoY increase in ASK for the whole year.
- Proposed share issuance. On 30 Oct, the Board proposed to issue not more than 2,453mn new A Shares to CSAH (parent company). Total funds to be raised will be not more than RMB 16,800mn, and will be utilized in the procurement of aircraft and the repayment of the Company’s borrowings. Also, the Board proposed to issue not more than 613mn new H Shares to Nan Lung (a wholly-owned subsidiary of CSAH). Total funds to be raised will be not more than HK$ 3,500mn, and will be utilized to supplement the general working capital of the Company.
- Valuation. 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 63.6%/126.7%, and roll over TP to RMB 7.63. Our TP corresponds to 1.5x 2020E P/B. The stock is currently trading at 1.4x 2020E P/B, lower than historical average of 1.7x. Maintain HOLD.
