The Company’s 2019 annual results was in line with our and consensus estimates. Since the Company has the highest proportion of international routes, we expect net loss for FY20E to be RMB 1,912mn, and BVPS to decrease to RMB 6.30. Based on 0.7x P/B, we lower TP to HK$ 4.92. The stock is currently trading at 0.7x 2020E P/B, lower than historical average. Downgrade to HOLD.
- 2019 annual results in line. The Company announced 2019 annual results. RPK increased 5.7% YoY, lower than guidance. Passenger load factor increased 0.42ppt to 81.02%. Passenger yield decreased 2.2% YoY to RMB 0.53 per RPK. Revenue decreased 0.5% YoY to RMB 140.2bn, in line with our and consensus estimates. Impacted by the adoption of IFRS 16, interest expenses increased 69.8% YoY to RMB 4.9bn. As a result, net profit attributable decreased 12.7% YoY to RMB 6.4bn, in line. The Board proposed cash dividend of RMB 0.04 per share for FY19.
- 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.
- The pandemic has the greatest impact on Air China. For the full year of 2019, international RPK of Air China / China Eastern Airlines / China Southern Airlines contributed 42.4% / 33.3% / 30.3% of total RPK. In Jan 2020, international RPK of AC / CEA / CSA changed by -1.9% / 7.6% / 3.8% YoY, respectively. Since Air China has the highest proportion of international routes, we believe that the pandemic has the greatest impact on Air China.
- Valuation. After oil price tumbled in 1Q20, we expect oil expenses to decrease 48.3% YoY to RMB 18.6bn. We expect net loss for FY20E to be RMB 1,912mn, and BVPS to decrease to RMB 6.30. Based on 0.7x P/B, we lower TP to HK$ 4.92. The stock is currently trading at 0.7x 2020E P/B, lower than historical average. Downgrade to HOLD.
