Air China (601111): 737-8 grounding impact continues in 2019 or still expected earnings management

Air China (601111): 737-8 grounding impact continues in 2019 or still expected earnings management

Company Status Last week we organized a reverse roadshow for Air China in Shanghai.

Investors are generally more concerned about the grounding of 737-8, the levy of the civil aviation development fund by half, and the marketization of air tickets.

We believe that 2018 is a turning year for the aviation industry. It is expected that the marketization of fares will continue to advance steadily and re-recommendation for Air China A and H.

Comments We believe that the 737-8 grounding caused a short-term capacity gap, which may affect the peak season.

We expect that the grounding incident will cause a 2-3% industry capacity gap, but since various airline companies will replace it by increasing aircraft utilization, the actual gap may exceed the expected value.

The scale of the company’s current grounded 737-8 has reduced the proportion of the company’s overall capacity. Considering that two related air crashes have occurred, we estimate that the Civil Aviation Administration will be more cautious about the go-around, and it is expected that there will be no solution before the peak season, which is good for the peak season ticket.price.

We think that halving the collection of civil aviation development funds will benefit the company’s earnings.

Starting from July 1, the levy standard for the Civil Aviation Development Fund will be reduced by half.

We believe this policy will directly benefit the company’s cost end.

We estimate that the company’s civil aviation development fund in 2018 will be about 2.5 billion. Expected expenditures, minority shareholders’ profit and loss and other effects are expected to increase the company’s 2019 net profit by 900 million to 1 billion annually, corresponding to a 9% increase in net profit.

We believe the marketization of fares will continue to advance and remain optimistic about future aviation demand.

The company raised a total of 57 routes in 2018, increasing revenue by 14 billion yuan.

In 2019, we expect fare marketization policies to continue.

We estimate that the industry 青岛夜网 is expected to maintain a growth rate of about 10% in the next 3-5 years. At present, constraints on aviation supply still exist, and the increase in per capita income at the demand side and consumption upgrades are all positive for aviation demand.

Revenue rebounded in 2018, and we expect the company to continue to focus on revenue management.

Summarizing the development of the past ten years, we believe that from the perspective of passenger kilometer revenue (RRPK), 2011 was a 10-year high for domestic and international routes. Since then, passenger kilometer revenue has drifted all the way to 2017, but the domestic and international routes in 2018Passenger revenue has picked up compared to 2017, due to various factors including supply-side control, rising fares, and increased load factors.

Considering the company’s 杭州夜网论坛 high-quality customer source structure and the previous capacity release is not radical, we expect the company to still be expected to manage revenue in 2019.

It is estimated that the company currently can sustainably correspond to December 2019.

4x P / E, 1.

6 times P / B.

Maintain A / H stock recommendation rating and target price in RMB.

36 yuan / HK $ 13.

15 yuan, a stock price target corresponding to 18 times P / E in 2019, 2.

2x P / B, 34% more space than currently expected.

Risks Aviation demand is less than expected; oil prices have risen sharply; the RMB has fallen sharply; routes have retreated.