CHINA EXPRESS AIRLINES(002928)：PREANNOUNCED 2Q25 EARNINGS BEAT EXPECTATIONS;CONTINUING TO BENEFIT FROM IMPROVING UTILIZATION RATE LOWER OIL PRICES AND SLOWDOWN IN AIRFARE DECLINES

　　Preannounced 1H25 earnings up 741–1,009% YoYChina Express Airlines preannounced its 1H25 results, estimating that itsattributable net profit grew 741–1,009% YoY to Rmb220–290mn in 1H25.
　　It estimates that its attributable net profit reached Rmb138–208mn in2Q25, vs. Rmb1.48mn in 2Q24. The firm's preannounced earnings beatour expectations, possibly due to better-than-expected passenger loadfactor (PLF) and airfares, as well as positive surprises in control over nonfuelcosts.
　　Trends to watch
　　Operations continued to recover in 2Q25; external factors boostedearnings. According to the Centre for Aviation (CAPA), the firm's shippingcapacity maintained rapid growth momentum by rising 16% YoY in 2Q25.
　　We believe the shortage of airline captains that previously weighed on thefirm's aircraft utilization rate is easing further. According to VariFlight’sCADAS, industry-wide domestic airfares (including fuel surcharges) fell8% YoY in 2Q25, lower than the 11% YoY decline in 1Q25. Although thefirm has penetrated into lower-tier markets, we think its airfares performedwell thanks to the slowdown in industry airfare declines. In addition, wethink external factors boosted the firm's earnings in 2Q25. According tooilchem.net, ex-factory prices of aviation kerosene fell 17% YoY in 2Q25(vs. an 11% YoY decline in 1Q25). Meanwhile, the renminbi appreciated0.3% against the US dollar in 2Q25.
　　We expect the firm's 3Q25 earnings to remain strong YoY. We think itsshipping capacity could maintain low double-digit growth in 3Q25. Weexpect its PLF to rise by low single digits YoY in 3Q25 and the YoY declinein its airfares to narrow further in the same period. According to presalesdata from 133.cn, domestic economy-class airfares (excluding fuelsurcharges) fell 1.6% YoY during the summer holiday period in 2025 (as ofJuly 13). We expect oil prices may continue to fall notably YoY in 3Q25.
　　The ex-factory prices of aviation kerosene fell 13% YoY in July 2025.
　　Financials and valuation
　　We keep our 2025 and 2026 earnings forecasts unchanged at Rmb617mnand Rmb914mn. The stock is trading at 17.9x 2025e and 12.1x 2026e　　P/E. We maintain our TP of Rmb9.2, implying 19x 2025e and 13x 2026eP/E and offering 6% upside. We believe the firm has gained operatingadvantages thanks to rising utilization rate and changes in its airlinenetwork amid improving industry supply-demand conditions, narrowingdeclines in airfares, and cost improvements driven by falling oil prices. Wemaintain an OUTPERFORM rating.
　　Risks
　　Disappointing capacity improvement; weaker-than-expected demand fromregional airlines; changes in government subsidy policies; weak airfareperformance; a sharp rise in oil prices; significant renminbi depreciation
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