What's new
CSA announced that its shareholder Qatar Airways （a member ofOneworld） bought 8,600 A-shares and 6,000 H-shares of the firm onDecember 28, raising its stake in CSA from 4.9999% to 5%. Before thelatest purchase, Qatar Airways had bought 430mn A-shares and180mn H-shares of CSA in November and December.
Comments
Qatar Airways’ large-scale purchase of CSA shares shows the firm’slong-term investment value. According to CSA, Qatar Airways’ recentpurchase of CSA shares is part of its strategic investment and is aimedto enhance its operating capabilities and network connections, and itmay consider further purchases in the next 12 months.
CSA’s losses in 4Q18 may narrow YoY, considering: 1） the renminbiappreciated 0.23% against the US dollar in 4Q18; 2） the average fuelprice in 4Q18 rose by an estimated 13% YoY; 3） unit non-fuel cost mayhave further declined YoY.
Low valuation indicates good investment value. We expect CSA’s2019 earnings to improve significantly YoY, thanks to an industryup-cycle, supply-side reform and market-oriented airfare reform. CSA-A/-H are trading at 1.2/0.8x 2019e P/B and 10.7/7.0x 2019e P/E,about one standard deviation below the historical average.
Valuation and recommendation
Considering the average oil price in 4Q18 was lower than expectedand the renminbi was stronger than expected, we raise our 2018earnings forecast by 12.3% to Rmb3,356mn. We maintain our 2019earnings forecast at Rmb7,470mn and introduce 2020 forecast ofRmb9,659mn （assuming a flat PLF, airfare, oil price and RMB/USDexchange rate in 2020）。 CSA-H is trading at 7.0/5.4x 2019/2020e P/Eand 0.8/0.7x 2019/2020e P/B. Based on earnings forecast revisions,we raise CSA-A/-H target prices by 9%/6.5% to Rmb8.50/HK$6.60,which offer 29%/41% upside room from the current prices and imply10.4/7.3x 2019e P/E and 1.3/0.9x 2019e P/B.
Risks
Aviation demand disappointing; oil price rising sharply; renminbidepreciating sharply against US dollar