2015 net profit of HK$6bn was up 91% y/y
Net profit was 13% ahead of our forecast and 14% ahead of consensusbecause of better performance at the core airline and associates. The 18% y/ydecline in fuel expenditure (after hedges) was the key driver of the y/yimprovement. 2H 2015 net profit of HK$4.0bn was more than double h/h asthe usual seasonal factors came into play. 2H 2015 net profit was also up 44%y/y. A DPS of HK$0.53 was declared for the full year, which was ahead of ourHK$0.41/share and translates to a yield of 3.9%.
Contribution from associates in 2015 was up 154% y/y
While load factors were a high 85.7% for the year, management commentedthat premium class demand was not as strong as expected on some long haulroutes. We saw the benefits of lower fuel prices partly given back to theconsumer as yields in 2H 2015 were down 13.4%. Air cargo was weak from2Q 2015 onwards.
Valuation looks attractive at 0.9x 2016E P/B with forecasted ROEs of 12-13%.
Management outlook sounds cautious to us as they cite challenges in terms ofstrong competition, foreign currency movements, weak premium classpassenger demand and overcapacity in the cargo business. But overallpassenger demand remains strong and they should continue to benefit fromlower fuel prices. We are forecasting a net profit of HK$7.1bn in 2016E, whichis a 20% increase from 2015. As their fuel hedges wind down, more of thelower fuel prices will be evident in 2016 results. Our 2016E net profit forecastis 14% ahead of consensus and we expect upgrades by the street over comingweeks. We would continue to recommend buying the stock at these levelsdespite recent price appreciation.