The three major airlines’ 1Q24 results were overall weaker than our expectation. Other than CSA which managed a turnaround in 1Q24, Air China and CEA remained in loss-making positions in 1Q24. The top six Chinese airlines’ combined fleet size is projected to grow 4.4-4.9% yoy in 2024 by our estimate; this is likely to keep the sector in an overcapacity situation for 2024. Downgrade Chinese airlines to UNDERWEIGHT on overcapacity and high gearing concerns. Top pick: Air China.
Mar 24 overall pax loads of the three airlines stood at 101-106% of pre-pandemic levels, slightly missing our projected 102-108% and representing some retracement from Feb 24’s 107-111% levels. Overall pax load factors of the three airlines were 0.8- 2.6ppt below pre-pandemic levels in Mar 24, indicating an overcapacity situation for the sector. We expect the three airlines to record positive profits in 2024. Maintain MARKET WEIGHT on airlines for their 1Q24 earnings turnaround prospect.
The three airlines’ 2023 results are in line with their guidance, with Air China and CSA at the mid-points of their guided ranges and CEA close to the lower end. Net losses narrowed yoy due to the recovery in air travel. We still expect all three airlines to achieve positive net profits in 2024, despite CAAC’s latest guidance for international air travel recovery (about 80% by end-24) coming in below our projections. Maintain MARKET WEIGHT. Top pick: Air China.
Feb 24 pax loads of the three airlines beat our expectations, at 107-111% of prepandemic levels, helped by the stronger-than-expected CNY holiday effect. Pax load factors continued to improve on a seasonally-adjusted basis in recent months, though still a tad below pre-pandemic levels in Feb 24. With steep share price declines over the past year and the latest upbeat operating data, near-term riskreward for the sector appears more balanced. Upgrade to MARKET WEIGHT.
The general evaluation of CHINA SOUTHERN AIR (HK), a company active in the Airlines industry, has been upgraded by the independent financial analyst theScreener with the addition of a star. Its fundamental valuation now shows 4 out of 4 possible stars while its market behaviour can be considered as defensive. theScreener believes that the additional star(s) merits the upgrade of its general evaluation to Positive. As of the analysis date February 18, 2022, the closing price was HKD 5.39 and its ...
All three Chinese carriers reported lower earnings with weak domestic yields being a central theme. The trio is expected to benefit from cost saving measures instituted by CAAC in 2H19 and this could alleviate some of the margin pressures, though upside is likely to be capped by concerns over high gearing and renminbi depreciation. We are however, most concerned about Cathay Pacific as the steep decline in visitor arrivals for August and continued protests could lead to a liquidity crunch. We th...
KEY HIGHLIGHTS Economics The Big Picture Financing squeeze may prove to be the Achilles heel of FAI growth. Results China Construction Bank (939 HK/BUY/HK$5.80/Target: HK$7.23) 1H19: Results in line; NIM squeezed as expected, but asset quality improved. China Jinmao Holdings (817 HK/BUY/HK$4.75/Target: HK$5.30) 1H19: Top-line disappoints but core profit in line; stable gross margins. China Molybdenum (3993 HK/HOLD/HK$2.09/Target: HK$2.30) 1H19: Results below expectation; production of maj...
GREATER CHINA Economics The Big Picture: Financing squeeze may prove to be the Achilles heel of FAI growth. Results China Construction Bank (939 HK/BUY/HK$5.80/Target: HK$7.23): 1H19: Results in line; NIM squeezed as expected, but asset quality improved. China Jinmao Holdings (817 HK/BUY/HK$4.75/Target: HK$5.30): 1H19: Top-line disappoints but core profit in line; stable gross margins. China Molybdenum (3993 HK/HOLD/HK$2.09/Target: HK$2.30): 1H19: Results below expectation; production of major ...
There are early indications of a slowdown in domestic pax traffic, with load factors of all three carriers falling in April. Thus, we lower 2019 domestic pax traffic growth assumptions for all three carriers. Part of the decline is likely to be alleviated by CAAC’s measures to reduce opex, which include cuts in development fee, likely reduction in jet fuel VAT and handling charges. We believe many of the negatives have been factored in. Upgrade CEA and CSA to BUY and the sector to OVERWEIGHT, ...
Maintain MARKET WEIGHT on the aviation sector. Air China and CEA recorded improvements in core net profit but weak operating cash flow. However, Air China is most optimistic of yield recovery among the trio. This, along with a likely reduction in civil aviation development fund, could improve margins for Air China and to a lesser extent for CEA and CSA. Our top pick is Air China. Maintain HOLD for CSA and CEA, with preferred entry levels at HK$6.50 and HK$5.30 respectively.
For the past decade, China Southern Airlines has been China’s largest airline in terms of revenue and passenger volume. The company now boasts the most comprehensive route networks among the Big Three operators (China Southern, Air China, and China Eastern), and enjoys first-mover advantage in international expansion by becoming the first Chinese member of SkyTeam, a global airline alliance.Despite its market share leadership position, China Southern does not command any pricing premium over i...
No-moat China Southern reported solid first-quarter results and provided some guidance for the remainder of 2019. The carrier’s first-quarter earnings featured higher adjusted operating margin, up 130 basis points year over year, driven primarily by strong cost management efforts. We have revisited our assumptions after incorporating the probability-weighted impact on the carrier from the ongoing conflict between China and the U.S. After fine-tuning our long-term forecasts, we maintain our fai...
No-moat China Southern reported solid first-quarter results and provided some guidance for the remainder of 2019. The carrier’s first-quarter earnings featured higher adjusted operating margin, up 130 basis points year over year, driven primarily by strong cost management efforts. We have revisited our assumptions after incorporating the probability-weighted impact on the carrier from the ongoing conflict between China and the U.S. After fine-tuning our long-term forecasts, we maintain our fai...
No-moat China Southern reported solid first-quarter results and provided some guidance for the remainder of 2019. The carrier’s first-quarter earnings featured higher adjusted operating margin, up 130 basis points year over year, driven primarily by strong cost management efforts. We have revisited our assumptions after incorporating the probability-weighted impact on the carrier from the ongoing conflict between China and the U.S. After fine-tuning our long-term forecasts, we maintain our fai...
On 3 April, China State Council announced that the Civil Aviation Development Fund will be cut in half effective 1 Jul 19. Thus far, even airlines are unsure whether the changes will be applicable to just passengers or airlines as well. Assuming airlines’ pricing rise by a quantum equivalent to 25% of the cost savings, 2019’s earnings could rise by 2.6-9.5%. If the policy measures extend to airlines, 2019 earnings could rise by 7- 24%. Air China remains our top pick in the sector. Maintain M...
No-moat China Southern Airlines’ fourth-quarter results come in slightly ahead of our estimates, but this was primarily driven by an around 40% surge in bottom line in government grants received. Our fair value estimate for China Southern is unchanged at HKD 7.8 (CNY 6.80). While the carrier’s near-term capacity growth will be matched by strong demand for air travel, we do not see any more upside in yield over the next five years. We also believe the indefinite grounding of Boeing 737 ...
No-moat China Southern Airlines’ fourth-quarter results come in slightly ahead of our estimates, but this was primarily driven by an around 40% surge in bottom line in government grants received. Our fair value estimate for China Southern is unchanged at HKD 7.8 (CNY 6.80). While the carrier’s near-term capacity growth will be matched by strong demand for air travel, we do not see any more upside in yield over the next five years. We also believe the indefinite grounding of Boeing 737 ...
No-moat China Southern Airlines’ fourth-quarter results come in slightly ahead of our estimates, but this was primarily driven by an around 40% surge in bottom line in government grants received. Our fair value estimate for China Southern is unchanged at HKD 7.8 (CNY 6.80). While the carrier’s near-term capacity growth will be matched by strong demand for air travel, we do not see any more upside in yield over the next five years. We also believe the indefinite grounding of Boeing 737 ...
2019 prospects for the aviation sector seem brighter than expected with 2M19 pax traffic rising 14.3% yoy. We raise our pax traffic assumptions for CEA and CSA as recent data invalidates our earlier assumption of a slowdown in domestic traffic. While a slowdown in cargo traffic is cause for concern, Chinese carriers have minimal exposure, except for CX. Still, there is scope for a slight improvement in March, judging by the Ministry of Commerce’s comments. CSA remains our top pick in the secto...
We continue to see China Southern as fairly valued as we await its full-year results release at the end of March. Our no-moat rating is unchanged. Since October 2018, the airline’s growth in cargo supply has consistently outpaced that of demand by an average of almost 700 basis points. We believe the underperformance in cargo might have been affected by the U.S.-China trade war. Management continues to guide for a passenger capacity increase of a low teens percentage for 2019, a rate that’s ...
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