Air China’s net profit increased 4.4% yoy to RMB3,623 million in 3Q19;roughly in line. The Company achieved profit growth through cost savings,with low fuel cost due to low oil price and reduced shipping insurance. Lesscontribution to the Civil Aviation Development Fund also helped save aboutRMB200 million. However, revenue was down 2.3% yoy as dragged by adecrease in passenger yield during 3Q19 with domestic and internationalroutes slightly down yoy. Net margin improved 0.6 ppts yoy to 9.6%. In 3Q18, AC booked RMB 2,622
We have revised downwards our net profit forecasts in 2019/ 2020/ 2021by 12.0%/ 11.2%/ 12.1%, respectively. We have mainly reduced ourpassenger yield assumptions to reflect a more challenging environment. ASKguidance from the management was roughly in line with our expectation,such that the management expects domestic/ international routes willincrease 6%/ 8%, respectively, in 2020. Therefore, we maintain ASKassumption unchanged.
We maintain investment rating as "Accumulate", and trim TP to HK$7.54on lowered earnings. Our TP represents 1.0x 2019 PBR and 0.9x 2020PBR. We still view the Company as attractive due to low valuation. Ourvaluation is just slightly below its long-term mean, thus we think it’sappropriate.