1H net profit of HK$2.0 bn was 28% of our full year forecastNet profit for 1H2015 was up 468% y/y but was 29% of consensus full year.The 9.3% y/y decline in 1H 2015 passenger yield was worse than ourexpectations; we have a 6% decline forecasted for the full year. Managementattributed the yield decline to the reduction in fuel surcharges, currencyfactors, and their 7% capacity growth was a little more than what the marketcould absorb. Premium class demand, though robust on short haul routes, wasweaker than expected on some long haul routes.
No sign of cargo uptickAfter a strong 1Q, cargo demand slackened in 2Q and the company does notsee any signs of a pickup. Cargo yield was down 11.1% in 1H 2015.
2H 2015 should be betterManagement say that 2H is traditionally the stronger half and expect nodifferently this year. However, with less than 30% of full year forecast achievedso far, there appears to be downside risk to consensus numbers. We worryabout the continued yield pressures and the soft cargo market, but doacknowledge that this is partially offset by lower fuel prices. At 1.1x 2015EP/B, valuations appear fair and we are retaining our Hold recommendation.