From Jan to Jun 2008, the company saw 13.26% yoy increase in operating income and a decline of 16.58% in operating profit; net profit attributable to parent reached Rmb1.282bn (-1.38% yoy). In addition, EPS pegged at Rmb0.11, or Rmb0.88 deducted non-recurring profit and loss.
Revenue acceleration of Air China underperformed China Southern Airlines (600029) and China Eastern Airlines (600115) if eliminated air china cargo from consolidation.
Influenced by natural disaster, Olympics and worldwide stagnant economic growth, Air China went through 1.89%, -1.27% and -1.49% margins in passenger-kilometer, ton-kilometer and number of passengers respectively in 1H2008, which indicated apparent slowdown. Meantime, seat kilometer utilization was 75.08%, a decrease of 0.76ppt yoy, while earning per passenger-kilometer and ton-kilometer advanced 3.40% and 7.16% yoy separately.
Net income of booked exchange gains was Rmb1.901bn. the company suffered pretax loss of Rmb475mn, excluding partial influence while core business suffered Rmb864mn if taken non-recurring profit and loss into consideration, translating into EPS of Rmb-0.07. Loss of core business was rooted from international oil price hikes.
The company will experience severe condition in the second half for many factors, such as negative effect of Olympics in July, Sichuan earthquake, higher oil price in Q3 and RMB appreciation slowdown.
We further adjust business growth assumption and earning forecast. We forecast EPS 2008-2010E be Rmb0.17, Rmb0.4 and Rmb0.65, implying PE 2008-2009E of 33.8x and 14.2x separately. We believe industry and performance earnings are in depression and great investment risks on the background of hiking oil price and crushed market demand, thus maintain “Neutral” rating for the moment.