The Company announced 3Q19 results. 9M19 revenue +6.3% YoY, in line withour/consensus estimates. Net profit -2.7% YoY. Adjusted net profit -8.0% YoY.RPK +10.4% YoY, highest among major peers. Passenger load factor was 82.6%,down 0.3ppt YoY. For 4Q19, as China-US are marching towards a “phase one”deal, we reiterate our view that we expect domestic demand to release. We factorin our house view of 2019E average Brent crude oil, and roll over TP to HK$ 5.80,corresponding to 1.1x 2020E P/B. Maintain BUY.
9M19 revenue in line; net profit decline narrowed due to other income.
For 9M19, operating revenue increased 6.3% YoY to RMB 93.4bn,representing 79%/74% of our/consensus full-year estimates. Net profitdecreased 2.7% YoY to RMB 4,367mn, representing 103%/91% ofour/consensus full-year estimates. Net profit in 3Q19 increased 9.8% YoY,benefitting from 30.5% YoY increase in other income. Adjusted net profitdecreased 8.0% YoY to RMB 3,893mn.
Highest RPK growth among major peers. For 9M19, RPK increased 10.4%YoY, higher than major peers （CSA +9.2% YoY, AC +6.2%）。 Third quarter isa traditional peak season for business, student and tourism travel. Traffic in3Q19 increased 11.0% YoY, as compared with 6.8% in 3Q18. ASK increased10.9% YoY, in line with management guidance at the beginning of the year.Passenger load factor was 82.6%, slightly down 0.3ppt YoY.
Positive 4Q19 outlook. For 4Q19, as China-US trade negotiation is inchingtowards a “phase one” deal, we reiterate our view that we expect domesticdemand to release. And we believe the Company will achieve 10% YoYincrease in ASK for the whole year.
Valuation. We adjust 2019/20E revenue up 1.4%/0.8% to reflect increase inother income. After drone attack on two Saudi Aramco’s oil facilities,production resumed faster than expected, our house trimmed 2019E averageBrent crude oil to US$64/b. We adjust 2019/20E net profit up by 59.4%/74.6%,and roll over TP to HK$ 5.80. Our TP corresponds to 1.1x 2020E P/B. Thestock is currently trading at 0.8x 2020E P/B, lower than historical average of1.2x. Maintain BUY.