Excluding FX effects, 1H19 net profit in line with our estimate
China Eastern Airlines （CEA） announced its 1H19 results: Revenuerose 7.6% YoY to Rmb62.27bn, but attributable net profit fell 14.8%YoY to Rmb1.94bn （Rmb0.13/sh）。 Excluding FX effects, net profitdropped 23% YoY in 1H19, in line with our estimate. In 2Q19, revenuerose 3.8% YoY to Rmb28.73bn, and net loss attributable toshareholders dropped 121% YoY to Rmb63mn. Excluding FX effects,we estimate that net profit fell roughly 46% YoY in 2Q19.
In 1H19, the RPK yield （fuel surcharges included） dipped 1.35% YoY.
Specifically, the RPK yield dropped 2.38% YoY for domestic routes, butrose 0.44% YoY for international routes. In 1H19, the ASK rose 10.4%YoY, with the PLF edging up 0.2ppt YoY. We attribute the YoY drop inthe RPK yield for domestic routes to weak business class demand,and the YoY rise in the RPK yield for international routes to strongJapanese and South Korean markets.
Trends to watch
We expect number of slots at Shanghai airports and other coreairports to increase, boding well for the firm’s air route incomes. Inaddition, we are upbeat on incomes of future air routes, given thatmultiple airports – Beijing Daxing International Airport, ShanghaiPudong Airport satellite concourse S1, Qingdao JiaodongInternational Airport, and Chengdu Tianfu International Airport – arescheduled to begin operation soon.
Financials and valuation
We maintain our 2019 and 2020 earnings forecasts at Rmb6,693mnto Rmb8,491mn.The H-share is trading at 0.7x 2019 and 0.6x 2020P/B. The A-share is trading at 1.2x 2019 and 1.1x 2020 P/B. ForH-share we maintain OUTPERFORM and our TP of HK$5.50 （1.1x 2019P/B and 1.0x 2020 P/B）， offering 49.5% upside from the current price.
For A-share we maintain OUTPERFORM and our TP of Rmb7.00 （1.6x2019 P/B and 1.4x 2020 P/B）， offering 35.9% upside from the currentprice.
Risks
Disappointing demand; sharp RMB depreciation against USD; surgingoil prices