The Company’s 2019 annual results was in line with our and consensusestimates. Since the Company has the highest proportion of international routes,we expect net loss for FY20E to be RMB 1,912mn, and BVPS to decrease toRMB 6.30. Based on 0.7x P/B, we lower TP to HK$ 4.92. The stock is currentlytrading at 0.7x 2020E P/B, lower than historical average. Downgrade to HOLD.
2019 annual results in line. The Company announced 2019 annual results.RPK increased 5.7% YoY, lower than guidance. Passenger load factorincreased 0.42ppt to 81.02%. Passenger yield decreased 2.2% YoY to RMB0.53 per RPK. Revenue decreased 0.5% YoY to RMB 140.2bn, in line withour and consensus estimates. Impacted by the adoption of IFRS 16, interestexpenses increased 69.8% YoY to RMB 4.9bn. As a result, net profitattributable decreased 12.7% YoY to RMB 6.4bn, in line. The Boardproposed cash dividend of RMB 0.04 per share for FY19.
Demand recovery faces great uncertainties. According to the Ministry ofTransport, on 31 Mar, civil aviation carried 487,600 passengers, less than 30%of the same day last year. Due to insufficient air travel demand, passengerload and yield both dropped. Looking forward, listed airlines generally expectdomestic demand to resume steady growth around May or Jun, and thatinternational demand to be more uncertain. Due to the uncertainty ofdemand recovery, listed airlines did not give 2020E guidance. We assume:domestic RPK growth in 1/2/3/4Q 20E is -50%/-5%/5%/10% YoY,respectively; international and regional RPK growth in 2020E is -50% YoY;passenger load factor decreases 10ppt YoY; passenger yield decreasesRMB 0.1 YoY.
The pandemic has the greatest impact on Air China. For the full year of 2019,international RPK of Air China / China Eastern Airlines / China Southern Airlinescontributed 42.4% / 33.3% / 30.3% of total RPK. In Jan 2020, international RPKof AC / CEA / CSA changed by -1.9% / 7.6% / 3.8% YoY, respectively. Since AirChina has the highest proportion of international routes, we believe that thepandemic has the greatest impact on Air China.
Valuation. After oil price tumbled in 1Q20, we expect oil expenses todecrease 48.3% YoY to RMB 18.6bn. We expect net loss for FY20E to beRMB 1,912mn, and BVPS to decrease to RMB 6.30. Based on 0.7x P/B, welower TP to HK$ 4.92. The stock is currently trading at 0.7x 2020E P/B,lower than historical average. Downgrade to HOLD.