The Company’s 2019 annual results was in line with our and consensus estimates. Under the pandemic, the Company’s cost control measures will help it weather the harsh winter of the industry. We expect net loss for FY20E to be RMB 1,880mn, and BVPS to decrease to RMB 4.10. Based on 1.3x P/B, we lower TP to RMB 5.33. The stock is currently trading at 1.0x 2020E P/B, lower than historical average. Maintain BUY.
- 2019 annual results in line. The Company announced 2019 annual results. RPK increased 10.1% YoY, in line with guidance. Passenger load factor decreased 0.23ppt to 82.06%. Passenger yield decreased 3.3% YoY to RMB 0.52 per RPK. Revenue increased 5.2% YoY to RMB 128.2bn, in line with our and consensus estimates. Net profit attributable increased 18.3% YoY to RMB 3.2bn, in line. The Board proposed cash dividend of RMB 0.05 per share for FY19.
- Operational highlights. The Company strengthened cost controls. Fuel consumption per ton kilometer decreased 4.4% YoY. We believe cost control measures will help the Company weather the harsh winter of the industry.
- Demand recovery faces great uncertainties. According to the Ministry of Transport, on 31 Mar, civil aviation carried 487,600 passengers, less than 30% of the same day last year. Due to insufficient air travel demand, passenger load and yield both dropped. Looking forward, listed airlines generally expect domestic demand to resume steady growth around May or Jun, and that international demand to be more uncertain. Due to the uncertainty of demand recovery, listed airlines did not give 2020E guidance. We assume: domestic RPK growth in 1/2/3/4Q 20E is -50%/-5%/5%/10% YoY, respectively; international and regional RPK growth in 2020E is -50% YoY; passenger load factor decreases 10ppt YoY; passenger yield decreases RMB 0.1 YoY.
- Valuation. After oil price tumbled in 1Q20, we expect oil expenses to decrease 48.7% YoY to RMB 17.5bn. We expect net loss for FY20E to be RMB 1,880mn, and BVPS to decrease to RMB 4.10. Based on 1.3x P/B, we lower TP to RMB 5.33. The stock is currently trading at 1.0x 2020E P/B, lower than historical average. Maintain BUY.
