9M19 revenue +0.2% YoY. Net profit -2.5% YoY. Adjusted net profit +0.5% YoY.RPK +6.2% YoY. Passenger load factor was 81.4%, up 0.5ppt YoY. For 4Q19, asChina and US are marching towards a “phase one” deal, we reiterate our view thatwe expect domestic demand to release. However, in the context of China-US tradefrictions and unrests in Hong Kong, higher proportion of international and regionalroutes is a double-edged sword. For 4Q19, we remain cautiously optimistic. Wefactor in our house view of 2019E average Brent crude oil, and raise TP fromHK$ 8.61 to HK$ 9.28, corresponding to 1.2x 2020E P/B. Maintain BUY.
9M19 revenue in line. For 9M19, operating revenue increased 0.2% YoY toRMB 103bn, representing 74%/72% of our/consensus original full-yearestimates. Net profit decreased 2.5% YoY to RMB 6,762mn, representing93%/84% of our/consensus original full-year estimates. Net profit in 3Q19increased 4.4% YoY, benefitting from increase in other income and investmentincome. Adjusted net profit increased 0.5% YoY to RMB 6,557mn.
Disappointing operating results. For 9M19, RPK increased 6.2% YoY, lowerthan major peers （CEA +10.4% YoY, CSA +9.2% YoY）。 Although third quarteris a traditional peak season for business, student and tourism travel, traffic in3Q19 increased 5.6% YoY, down 3.8ppt YoY. RPK from international/regionalroutes in 3Q19 increased 4.4%/0.7% YoY, as compared with 12.7%/7.8% in3Q18. ASK increased 5.6% YoY, lagging management guidance of 9-10% atthe beginning of the year. Passenger load factor was 81.4%, up 0.5ppt YoY.
Cautiously optimistic 4Q19 outlook. For 4Q19, as China and US aremarching towards a “phase one” deal, we reiterate our view that we expectdomestic demand to release. However, in the context of China-US tradefrictions and unrests in Hong Kong, higher proportion of international andregional routes is a double-edged sword. For 4Q19, we remain cautiouslyoptimistic.
Valuation. We adjust 2019/20E revenue down 0.7%/1.5% to reflect lower-thanexpectedtraffic growth. After drone attack on two Saudi Aramco’s oil facilities,production resumed faster than expected, our house trimmed 2019E averageBrent crude oil to US$64/b. We adjust 2019/20E net profit up by 20.6%/30.7%,and roll over TP to HK$ 9.28. Our TP corresponds to 1.2x 2020E P/B. The stockis currently trading at 0.9x 2020E P/B, lower than historical average of 1.2x.Maintain BUY.