JUNEYAO AIRLINES(603885)：RESULTS IN LINE; UNIT COST IMPROVES MARKEDLY

　　1H23 results in line with our expectations
Juneyao Airlines announced 1H23 results: Revenue rose 174% YoY　and 94% HoH to Rmb9.33bn in 1H23. Net profit attributable to shareholders turned positive YoY and HoH to Rmb62mn, within the preannounced range of Rmb55-80mn. In 2Q23, revenue grew 429% YoY and 10% QoQ to Rmb4.89bn. The attributable net loss was Rmb103mn, mainly as the firm booked large forex losses on renminbi fluctuations in 2Q23. The 1H23 results are in line with our expectations.
　　Supply continues to recover; overseas ASK in 2Q23 recovered to 87% of corresponding period in 2019. In 1H23, the firm’s overall　available seat kilometer (ASK) recovered to 114% of the level in 1H19 (and 121% of the 2Q19 level in 2Q23). In 1H23, domestic ASK increased 23% compared with the 2019 level (rising by 28% in 2Q23 compared with 2Q19) and overseas ASK recovered to 69% of the 1H19 level (87% of the 2Q19 level in 2Q23).
　　In 1H23, revenue per ASK rose 1.5% compared with 2019, which we　believe was mainly because revenue passenger kilometer (RPK) increased compared with 2Q19 and the rates for air cargo were higher than the same period in 2019. Quarterly revenue per ASK in 1Q23 and 2Q23 rose 0.9% and 2.5% vs. corresponding periods in 2019, growing QoQ mainly as the decline in passenger load factor (PLF) narrowed to 4.2pct in 2Q23 compared with 2Q19 (vs. a 5.3pct decline in PLF in 1Q23).
　　Cost control effective; we see further upside potential. In 1H23, the　firm’s cost per ASK was about Rmb0.35, up 2.8% compared with 1H19, and its fuel cost per ASK rose 21.6% and non-fuel cost per ASK fell 5.6%.In 2Q23, cost per ASK fell 6.7% QoQ to about Rmb0.34, mainly due to higher aircraft utilization, and fell 2.3% compared with 2Q19, which we attribute to lower operating leases, and falling aircraft movement and parking fees per ASK. According to the firm’s announcement, the average utilization rate of its main A320 aircraft was 9.53 hours in 1H19, much lower than the level of 11.12 hours in 1H19. As flights continue to recover, we see further room for cost improvement.
　　Trends to watch
　　3Q23 earnings may hit a quarterly high due to strong operating data　in first half of summer season. According to corporate filings, the firm’s overall ASK rose by 25% in July compared with the same period in 2019, with domestic ASK up 40%. The firm’s overall PLF in July rose 1.2ppt compared with the same period in 2019 (up 0.7ppt on domestic routes).
　　Meanwhile, data from Flight AI shows that the industry’s airfares for domestic and international routes increased 19% and 28% in July compared with the 2019 levels. We expect Juenyao’s airfares to outperform the industry given the network structure of the firm’s domestic and international routes. We believe 3Q23 earnings may reach a new quarterly high.
　　Financials and valuation
　　Our earnings forecasts are unchanged for 2023 at Rmb1.32bn and for 2024 at Rmb3.06bn. The stock is trading at 27.6x 2023e and 11.9x 2024e P/E. We maintain our target price of Rmb21.50, implying 15.6x 2024e P/E, offering 30.9% upside. Maintain OUTPERFORM.
　　Risks
　　Economic recovery disappoints; sharp rise in oil prices; sharp RMB depreciation.
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   【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。