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 2,975mn, and BVPS to decrease to RMB 4.19. Based on 0.8x P/B, we lower TP to HK$ 3.73. 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 9.9% YoY, in line with guidance. Passenger load factor increased 0.37ppt to 82.81%. Passenger yield remained flat at RMB 0.49 per RPK. Revenue increased 7.4% YoY to RMB 154.3bn, in line with our and consensus estimates. Impacted by the adoption of IFRS 16, interest expenses increased 82.5% YoY to RMB 5.8bn. As a result, net profit attributable decreased 8.8% YoY to RMB 2.6bn, missed our and consensus estimates. The Board did not recommend any payment of final cash dividend for FY19.
- Operational highlights. (1) The Company strengthened cost controls. Fuel consumption per ton kilometer decreased 3.95% YoY. We believe cost control measures will help the Company weather the harsh winter of the industry. (2) The Company successfully transited 13 routes to the new Daxing Airport. By Mar 2021, the Company’s market share in Daxing Airport will reach 43%.
- 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 46.8% YoY to RMB 22.8bn. We expect net loss for FY20E to be RMB 2,975mn, and BVPS to decrease to RMB 4.19. Based on 0.8x P/B, we lower TP to HK$ 3.73. The stock is currently trading at 0.7x 2020E P/B, lower than historical average. Downgrade to HOLD.
