The company announced that its profit during first three quarters of 2008 might suffer a loss, which is unexpectedly lower than the market expectation. Reasons of loss are: rebound of market demand, hike of aviation oil cost, and variation of fuel hedging fair value at sometime on September 30.
As far as we are concerned, fuel hedging fair value variation might mainly contributed for the loss.
In our view, situations in other aviation companies will be the same, and we project the company’s EPS during January and September of 2008 to be Rmb-0.1, and EPS of China Eastern Airlines (600115) to be above Rmb-0.35 for the corresponding period. Meanwhile, given persistence of global economic slowdown, the sector will continue to face a bear market. Consequently, this will somewhat cut the benefits of oil price rebound. Moreover, it is hard for the sector to sharply rebound in Q4; profit loss will still be serious.
We suggest investors give top priorities to sector integration, bounce of demand, fuel price adjustment and oil product price reformation in the near future.
We hereby keep "Neutral" rating intact.