1H25 results in line with our expectations China Eastern Airlines (CEA) announced its 1H25 results: Revenue

rose 4.1% YoY to Rmb66.82bn, and net loss attributable to shareholders narrowed notably by Rmb1.34bn YoY to Rmb1.43bn. In 2Q25, revenue rose 7.8% YoY to Rmb33.42bn, and net loss attributable to shareholders narrowed Rmb1.53bn to Rmb436mn, largely in line with our expectations.

Passenger turnover maintains rapid growth, with PLF at a record high, while airfares on domestic and international routes remain

under pressure. In 1H25, the firm's RPK increased 12.2% YoY, maintaining rapid growth. Its passenger load factor (PLF) was 84.8%, the highest level in history. Due to the overall economic environment, the firm's airfares dropped notably in 1H25, falling 7.2% YoY (-7.9% YoY for domestic flights and -5.4% YoY for international flights).

Trends to watch Industry-wide domestic revenue management urgently needs strengthening; aviation “anti-involution” campaign poised to take off.

We note that domestic airfares fell notably in 1H25, weighing on the firm’s earnings. On August 14, the China Air Transport Association (CATA)

released the Self-Regulation Convention for Air Passenger Services,

calling for the elimination of malicious competitive practices aimed at driving out competitors, including below-cost pricing and false advertising.

We think that this initiative is intended to encourage airlines to adopt cost- based pricing strategies and curb the practice of pricing below cost in pursuit of higher PLF.

Reduces planned aircraft orders; fleet growth may slow further in

coming years. In its 1H25 results report, the firm disclosed plans to purchase 26 Boeing and Airbus aircraft in 2026 and 31 in 2027, down by 39 and 13, respectively, from the introduction plan in its 2024 results report. We believe this may be due to the cancellation of some delayed aircraft orders, which could lead to slower fleet growth in the coming years.

Aviation value chain remains tight; cost pressure remains high. In

1H25, the firm's takeoff and landing fees, aircraft and engine maintenance costs, and expenses on catering and supplies rose 20.5%, 35.9%, and 41.2% YoY, notably exceeding its capacity growth (available seat kilometer　　or ASK up 7.5% YoY). We attribute this to: 1) A sharp increase in international flight movements and international passenger traffic; and 2) soaring aircraft repair costs due to tight aviation supply chain. In the next few years, we believe the firm needs to further optimize cost control over catering services and aircraft maintenance.

Financials and valuation

Due to lower-than-expected industry-wide airfares in 2025, we cut our 2025 revenue forecasts for CEA-A and CEA-H by 9.0% and 3.4% to Rmb141.70bn and Rmb150.21bn. We cut our 2025 earnings forecasts for CEA-A and CEA-H by 53.0% and 53.0% to Rmb2.39bn and Rmb2.39bn.

At the same time, we introduce our 2026 earnings forecast for CEA-A and CEA-H of Rmb5.47bn.

As we think that China's aviation market may complete its recovery by 2026, we roll over our valuation to 2026. A-shares are trading at 16.6x 2026e P/E, and H-shares are trading at 11.2x 2026e P/E. We maintain our A-share target price of Rmb5.0, implying 20.4x 2026e P/E with 22.9% upside. Due to rising valuation in the Hong Kong stock market, we raise our H-share target price by 36% to HK$3.5, implying 12.9x 2026e P/E with 15.5% upside. We maintain OUTPERFORM for A- and H-shares as the firm’s earnings improved notably YoY.

Risks

Weaker-than-expected demand in slack season; sharp rise in oil prices; sharp depreciation of renminbi against US dollar.