26/05/2020

China Eastern Airlines (600115): Core profits are increasing and the quality of earnings is rising

China Eastern Airlines (600115): Core profits are increasing and the quality of earnings is rising

Event: The company released its 2018 annual report and achieved operating income of 1149.

300 million (+13.

0%), achieving net profit attributable to mothers27.

1 ‰ (-57.

4%), net of non-attributed net profit 19.

3 ‰ (-57.

0%), in line with the Air Force’s performance forecast.

The initial oil ticket increased by 4.

1%, deducting foreign exchange and deducting non-core net profit of about 3.5 billion yuan.

1) In terms of operation and investment, China Eastern’s operating quality improved significantly in 2018, achieving ASK growth rate8.

3%, RPK growth rate of 10.

0%, completed passenger traffic volume 1.

1.2 billion people (+9.

3%) and a load factor of 82.

3%, up 1 every year.

2pp, the highest increase in load factor among the three major airlines.

2) In terms of passenger-kilometer revenue, under the combined effect of better supply and demand, marketization of fares and its 17-year low base, China Eastern Airlines gradually received oil-free passenger revenue of 0.

538 yuan (+4.

1%), in terms of structure, domestic passenger revenue increased by 4.

1%, international passenger revenue increased by 4.

3%.

3) In terms of cost and profit, the company’s operating costs in 2018 totaled 10.2 billion (+13.

4%), mainly because fuel costs increased by 34% to 337 trillion, the company deducted fuel costs of 687 ppm (+5.

5%), unit ASK oil deduction cost 0.

28 yuan (-2.

7%).

The company’s sales / management / debit exchange financial expense ratios are 5 respectively.

3% / 2.

8% / 3.

4%, the total deduction rate for the three fees is 11.

4%, a decline of 0 per year.

5pp.

The RMB depreciated against the US dollar in 20184.

8%, China Eastern recorded a foreign exchange loss of 20.

4 million, we estimate that the company’s non-net profit deduction in 2018 is about 34.

60,000 yuan (ten years +15.

8%).

In 18Q4, the cost of oil deduction for ASK units decreased by about 5%, and the losses were reduced in the off-season.Looking at 2018Q4 alone, China Eastern achieved revenues of 27.1 billion (+11.

7%) and operating costs of 2.8 million yuan (+13.

6%).

We estimate that the operating cost of the ASK unit of the 18Q4 company will increase by 4 per year.

4%, of which the unit cost of oil deduction decreased by about 5.

4%, alleviating profit erosion from increased fuel costs.

18Q4 single quarter net profit attributable to mother -17.

800 million, we estimate that the single-quarter deduction of foreign exchange profits to maximize the loss of about 500 million.

Boeing 737MAX grounded or restrained civilian supply.

CAAC grounded and suspended the introduction of Boeing 737MAX. At present, about 96 MAXs are grounded, accounting for about 2 of the Chinese civil aviation fleet at the end of 2018.

The number of B737MAXs expected to be delivered to long-term airlines / aircraft leasing companies is about 104/299 in 2019.

The Boeing incident still depends on the results of the FAA’s investigation and the Civil Aviation Authority’s regulatory policies.

In the short term, order re-signature and fleet management have certain rigid characteristics. The industry’s performance elasticity in the peak season this year has increased.

Earnings forecast and rating: It is expected that the company’s net profit attributable 南宁桑拿 to its parent in 2019-2021 will be 72.

7,74.

4, 88.

800 million yuan, corresponding to the current PE of 13.

8X, 13.

5 times, 11.

3X, considering the stabilization of the oil exchange environment, the flexibility of fares in the peak season is expected, and the first coverage gives the “overweight” rating.

Risk warning: the risk of fluctuations in aviation demand, the risk of a significant devaluation of the RMB, and the risk of a significant rise in oil prices.