东方航空：9M19revenue in line;positive 4Q19outlook

The Company announced 3Q19results. 9M19revenue +6.3% YoY, in line withour/consensus estimates. Net profit -2.7% YoY. Adjusted net profit -8.0% YoY.RPK +10.4% YoY, highest among major peers. Passenger load factor was 82.6%,down 0.3ppt YoY. For 4Q19, as China-US are marching towards a “phase one”deal, we reiterate our view that we expect domestic demand to release. We factorin our house view of 2019E average Brent crude oil, and roll over TP to RMB 6.86,corresponding to 1.5x 2019E P/B. Upgrade to BUY.n 9M19revenue in line; net profit decline narrowed due to other income.For 9M19, operating revenue increased 6.3% YoY to RMB 93.4bn,representing 79%/74% of our/consensus full-year estimates. Net profitdecreased 2.7% YoY to RMB 4,367mn, representing 103%/91% ofour/consensus full-year estimates. Net profit in 3Q19increased 9.8% YoY,benefitting from 30.5% YoY increase in other income. Adjusted net profitdecreased 8.0% YoY to RMB 3,893mn.n Highest RPK growth among major peers. For 9M19, RPK increased 10.4%YoY, higher than major peers (CSA +9.2% YoY, AC +6.2%). Third quarter isa traditional peak season for business, student and tourism travel. Traffic in3Q19increased 11.0% YoY, as compared with 6.8% in 3Q18. ASK increased10.9% YoY, in line with management guidance at the beginning of the year.Passenger load factor was 82.6%, slightly down 0.3ppt YoY.n Positive 4Q19outlook. For 4Q19, as China-US trade negotiation is inchingtowards a “phase one” deal, we reiterate our view that we expect domesticdemand to release. And we believe the Company will achieve 10% YoYincrease in ASK for the whole year.n Valuation. We adjust 2019E revenue up 1.4% to reflect increase in otherincome. After drone attack on two Saudi Aramco’s oil facilities, productionresumed faster than expected, our house trimmed 2019E average Brent crudeoil to US$64/b. We adjust 2019/20E net profit up by 59.4%/74.6%, and rollover TP to RMB 6.86. Our TP corresponds to 1.5x 2019E P/B. The stock iscurrently trading at 1.1x 2019E P/B, lower than historical average of 2.2x.Upgrade to BUY.