CEA recorded shareholders’ loss of RMB8,542 million in 1H20 （vs. netprofit of RMB1,941 million in 1H19）， below expectations. Revenuedropped by 57.3% yoy to RMB25,159 million as dragged by passengerrevenue, in which overall RPK dropped 62.2% yoy in 1H20. Operating costdecreased by 45.3% yoy, consistent with the decrease in RPK as thedecrease was less than revenue decline. Some fixed costs were not able tobe significantly reduced, such as salaries, depreciation and aircraftmaintenance. Further, an exchange loss of RMB738 million was recorded.
We have revised our profit forecasts downwards in 2020 to 2022, andwe expect shareholders’ loss to widen to RMB9,333 million in 2020. Wehave reduced ASK/ RPK for domestic routes as recovery was weaker thanexpected in 2Q20. Meanwhile, we also lowered international routeassumptions in our forecasted period as the restart overseas travel may belonger than expected, mainly being affected by the unpredictability of thepandemic situation in key international markets, we expect 2021 to onlyrecover 76% of the 2019 level.
1H20 results showed that passenger traffic was key to bottom-line recovery.
We noticed that the improvement in ASK has been speeding up in 3Q20, andwe think that the government is supporting the opening up of domestic travel,aligning with the push of economic self-reliance. We maintain investmentrating as "Accumulate", and revise up TP to HK$4.00. Our TP represents1.1x 2021 PBR and 1.0x 2022 PBR.