1H25 results largely in line with our expectations

Spring Airlines announced its 1H25 results: Revenue rose 4.4% YoY to Rmb10.30bn and attributable net profit fell 14.11% YoY to Rmb1.17bn, largely in line with our expectations. In 2Q25, revenue rose 5.95% YoY to Rmb4.99bn and attributable net profit fell 10.7% YoY to Rmb492mn, mainly due to an increase in the effective tax rate (effective tax rate increased from 10.6% in 2Q24 to 24.4% in 2Q25). The firm’s pre-tax profit continued to grow in 1H25 (+2.6%).

In 1H25, the firm’s RPK fell 4.1% YoY, a smaller decline than the industry average and still much higher than in 2019. In 1H25, RPK dropped 4.1% YoY to Rmb0.377 (RPK of domestic routes fell 5% YoY, smaller than the industry average of 9.3%), but still higher than the 3.6% in 2019, reflecting excess returns from optimizing the structure of domestic and overseas routes.

Financial expenses increased due to higher forex losses. FX loss was Rmb0.02bn in 1H25 (vs. gains of Rmb0.02bn in 1H24), possibly due to the firm’s exposure to US dollar-based net assets.

Trends to watch

Strengthened corporate governance; plans to repurchase shares again for ESOP. The firm announced that it would use Rmb300-500mn of its own funds to repurchase shares, which would be used for its follow-on employee stock ownership plan (ESOP). This is a strong move to further improve the long-term incentive mechanism and strengthen corporate governance, which we believe will further motivate core team members and promote the firm’s sustainable development in the long term.

The firm invested heavily in international flights in 1H25. We believe it needs to balance the volume and prices of international flights going forward. In 1H25, available seat kilometers (ASK) of the firm’s international routes increased 41.0% YoY (overall ASK only increased 9.5% YoY), especially for routes to Japan and South Korea. We expect the firm to continue to increase ASK for international flights, which may lead to a decline in the earnings of Japanese and South Korea routes, but is still much higher than the average earnings of domestic routes.

The firm is still subject to problems such as low aircraft orders and engine failures, and its aircraft capacity growth is slower than its　target. We expect the firm to maintain fleet expansion through leasing. The number of aircraft orders is declining, and the engine problems that plague the industry are also affecting the company’s business operations. However, we expect the company to maintain steady growth in fleet through purchasing and leasing. Meanwhile, we think the small problems with CFM engines in its fleet can be fixed in a relatively short period of time.

Financials and valuation

We keep our 2025 and 2026 earnings forecasts unchanged at Rmb2.53bn and Rmb3.02bn. The stock is trading at 20.9x and 17.5x 2025e and 2026e P/E. We maintain our TP at Rmb67.9, implying 26.3x and 22.0x 2025e and 2026e P/E, offering 25.7% upside. Maintain OUTPERFORM.

Risks

Sharp rise in oil prices; slower-than-expected recovery of international routes; disappointing recovery in the number of pilots.