China Southern Airlines (600029): Specification changes 南京夜网 dragged down performance indicators, supply slowed, bottomed out, and performance rebounded

Event / News: On August 27, China Southern Airlines announced the results of the first half of 2019. China Southern Airlines achieved operating income of 729 in the first half of 2019.

39 ppm, a ten-year increase of 7.

97%, net profit attributable to mother 16.

90 trillion, down 20 a year.

92%, in line with our performance expectations for July.

Supply growth has fallen at a high level, and domestic demand has been under short-term pressure.

In the first half of 2019, the growth rate of usable seat kilometers (ASK) of China Southern Airlines was 10.

14%, of which only 8 in China.

94%, well below the 12% growth rate over the same period.

This means that measures such as extending the average distance and changing the location layout of the China Southern Airlines last year under the background of tightening at the same time have a diminishing effector margin, providing a rapid decline in growth, and 4.

62% of flights are growing faster.

Although the growth rate of supply has contracted, due to the macroeconomic impact, domestic demand has experienced a short-term cold, and the revenue of seat kilometers has decreased.

70%, dragging down overall seat km income by 1.

34%.

In the future, the industry demand growth rate will quickly follow the probability that the macro economy will continue to change, but we must consider the continued tightening of domestic civil aviation regulatory policies, and the industry supply will continue to gradually change, which is conducive to the improvement of the industry’s overall income level.

The change of indicators promotes depreciation rainstorm, which affects performance in a short time.

From 2019, the three major airlines including China Southern Airlines will implement the new leasing regulations. Operating leases will be consolidated into financing leases and included in the balance sheet.

Affected by this, depreciation in the income statement increased by 4.6 billion per year, rental expenses exceeded by 3.3 billion, index costs increased by 1.4 billion, and total operating costs increased by approximately 2.7 billion.

China Southern Airlines’ profit before tax was only 3.1 billion in 2018, and changes in lease pricing led to improved performance.

At the same time, the total assets of China Southern Airlines increased by 21 each year.

70% to 30 million yuan, asset-liability ratio increased by 6.

45PT to 74.

75%.

Oil exchange favors gradual release.

Results are about to bottom out.

The unit fuel cost of China Southern Airlines decreased by 1 in the first two quarters of 2019.

75% vs. 5.

13%, the favorable price of oil is gradually being realized.

Although there has been no depreciation of the RMB exchange rate since the second quarter, the exchange rate of the US dollar to the RMB at the beginning of 2019 was 6.

88 yuan / US dollar, the current depreciation rate is about 3%, less than the overall rate of last year.

Especially in the third quarter, the peak base of oil prices and exchange losses was high. After the fundamentals bottomed out, the overall performance promoted a steady development track.

Investment suggestion: From the results announcement and operating data of China Southern Airlines in the first half of each year from 2019, changes in leases will have an impact on performance, but China Southern still stabilizes its profit before tax deduction through supply and demand improvement and cost control.

Supply and demand will continue to improve after further supply decline in the future, long-term fundamentals continue to improve, and the profit margin for oil price exchanges is better, so we maintain net profit attributable to mothers in 2019-2021.

1.6 billion, 100.

10,000 yuan, 127.

66 billion US dollars unchanged, corresponding to the current expected PE is 10 times, 8 times, 7 times, maintaining the “overweight” level.

Risk reminders: macroeconomic fluctuations, rising oil prices, rapid depreciation of currency exchange rates, and accidents such as air crashes