CEA’s net profit increased 9.8% yoy to RMB2,424 million in 3Q19, belowexpectation. Revenue grew just 3.5% yoy to RMB34,616 million on strongpassenger traffic growth. In 3Q19, RPK grew by 10.1% yoy with domestic/international routes up yoy by 11.2%/ 9.5%, respectively. Passenger yielddown 6.6% yoy, dragged by domestic and international routes, as PLF alsodecreased by 1.3 ppts yoy in 3Q19. Operating profit increased 9.7% yoy, dueto benefits from low fuel cost.
We revise down our profit forecasts by 4.5%/ 27.4%/ 29.5% in 2019 to2021, respectively. We have revised downwards on assumptions ofpassenger yield and PLF assumption due to the Company’s fast capacityexpansion strategy.
CEA has the potential to have a brighter outlook after the opening of Pudongnew Satellite Terminal and moving to Daxing Airport in Beijing. The move toDaxing Airport will allow the Company access to a new market, while the newterminal opens up opportunities of route expansion in this prime region. Improvement of CEA are among the better ones with profitability continuing toexpand, despite seeing passenger yield pressure. We maintain ourinvestment rating of "Accumulate", but revise down our TP to HK$4.22on lowered earnings forecast. Our TP represents 0.9x 2019 PBR and 0.8x2020 PBR. Valuation is very low across the sector with CEA 12M forwardPBR currently trading at 0.8x.