吉祥航空：RPK growth beats expectation

The Company announced 3Q19results on 31Oct. 9M19revenue +17.0% YoY.Net profit -13.8% YoY. Adjusted net profit -4.9% YoY. RPK +16.8% YoY.Passenger load factor was 85.9%, down 0.7ppt YoY. For 4Q19, as China and USare marching towards a “phase one” deal, we reiterate our view that we expectdomestic demand to release. And we believe the Company will achieve 15% YoYincrease in ASK for the whole year. We factor in our house view of 2019E averageBrent crude oil, and raise TP from RMB 15.03to RMB 17.63, corresponding to 2.9x2020E P/B. Maintain BUY.n 9M19revenue in line. For 9M19, operating revenue increased 17.0% YoY toRMB 13bn, representing 80%/78% of our/consensus previous full-yearestimates. Net profit decreased 13.8% YoY to RMB 1,236mn, representing98%/91% of our/consensus previous full-year estimates. Net profit in 3Q19decreased 19.5% YoY, mainly due to sharp decline in non-operating income.Excluding extraordinary items, decrease in net profit shrank to 4.9% YoY toRMB 1,153mn.n RPK growth beats expectation. For 9M19, RPK increased 16.8% YoY,highest among peers (CEA +10.4%; CSA +9.2%; AC +6.2%; Spring Airlines+13.7%). The third quarter is a traditional peak season for business, studentand tourism travel. Benefitting from new international routes opened in YE18,traffic in 3Q19increased 19.1% YoY, as compared with 6.7% increase in3Q18. ASK increased 17.7% YoY, higher than management guidance at thebeginning of the year. Passenger load factor was 85.9%, down 0.7ppt YoY.n Positive 4Q19outlook. For 4Q19, as domestic economy stabilizes, andChina and US are marching towards a “phase one” deal, we reiterate our viewthat we expect both domestic and international demand to release. And webelieve the Company will achieve 15% YoY increase in ASK for the wholeyear.n Valuation. 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 13.7%/31.5%, and rollover TP to RMB 17.63. Our TP corresponds to 2.9x 2020E P/B. The stock iscurrently trading at 2.5x 2020E P/B, lower than historical average of 3.0x.Maintain BUY.