The Company announced 3Q19 results on 31 Oct. 9M19 revenue +17.0% YoY. Net profit -13.8% YoY. Adjusted net profit -4.9% YoY. RPK +16.8% YoY. Passenger load factor was 85.9%, down 0.7ppt 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 15% 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 15.03 to RMB 17.63, corresponding to 2.9x 2020E P/B. Maintain BUY.
- 9M19 revenue in line. For 9M19, operating revenue increased 17.0% YoY to RMB 13bn, representing 80%/78% of our/consensus previous full-year estimates. Net profit decreased 13.8% YoY to RMB 1,236mn, representing 98%/91% of our/consensus previous full-year estimates. Net profit in 3Q19 decreased 19.5% YoY, mainly due to sharp decline in non-operating income. Excluding extraordinary items, decrease in net profit shrank to 4.9% YoY to RMB 1,153mn.
- RPK growth beats expectation. For 9M19, RPK increased 16.8% YoY, highest among peers (CEA +10.4%; CSA +9.2%; AC +6.2%; Spring Airlines +13.7%). The third quarter is a traditional peak season for business, student and tourism travel. Benefitting from new international routes opened in YE18, traffic in 3Q19 increased 19.1% YoY, as compared with 6.7% increase in 3Q18. ASK increased 17.7% YoY, higher than management guidance at the beginning of the year. Passenger load factor was 85.9%, down 0.7ppt YoY.
- Positive 4Q19 outlook. For 4Q19, as domestic economy stabilizes, and China and US are marching towards a “phase one” deal, we reiterate our view that we expect both domestic and international demand to release. And we believe the Company will achieve 15% YoY increase in ASK for the whole year.
- 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 13.7%/31.5%, and roll over TP to RMB 17.63. Our TP corresponds to 2.9x 2020E P/B. The stock is currently trading at 2.5x 2020E P/B, lower than historical average of 3.0x. Maintain BUY.
