Results Review

Results slightly miss our expectations

Spring Airlines announced its 2025 results: Revenue rose 7.3% YoY to Rmb21.46bn, and net profit attributable to shareholders grew 2% YoY to Rmb2.32bn, slightly missing our expectations. In 4Q25, revenue rose 6% YoY to Rmb4.69bn, and attributable net loss was Rmb18.5mn. Attributable net loss notably narrowed YoY, due to a higher aircraft utilization rate and a sharp YoY decline in income tax expense.

Cost control remains effective; unit costs have declined for years. In 2025, the firm's unit costs fell 5% YoY to Rmb0.3, with unit non-fuel costs down 2.5% YoY to Rmb0.2. Both unit costs and unit non-fuel costs continued to decline over 2023–2025, thanks to falling international oil prices and a rising utilization rate of aircraft.

Trends to watch

The firm's fleet expansion may accelerate, and its aircraft utilization rate may rise further. The firm may accelerate aircraft introduction via leasing and self-purchase. We estimate that the annual growth rate of its fleet will reach 5% in 2026 and 2027. Meanwhile, we expect the utilization rate of aircraft to rise further as the firm accelerates the training of pilots and the issue of engine parking is being resolved.

Disruptions to international routes persist; shifting back to the domestic market may partly offset the resulting impact. We expect the firm to remain affected by sluggish passenger traffic in international markets (such as Japan and Southeast Asia) in 2026. The firm's efforts to explore domestic routes may offset the resulting impact, in our view.

Raising dividend payout ratio to enhance shareholder returns. The firm announced its profit distribution plan for 2025, increasing its cash dividend payout ratio from 35% in 2024 to 40% in 2025, a new high since the firm's IPO, showing that the firm attaches great importance to shareholder returns and market cap management.

Financials and valuation

Given a YoY increase in industry-wide airfares in 2026, we raise our 2026 revenue forecast 4.8% to Rmb24.53bn, and introduce our 2027 revenue forecast at Rmb26.88bn. As international oil prices have risen sharply since 2026, we lower our 2026 earnings forecast 36.8% to Rmb1.91bn, and introduce our 2027 earnings forecast at Rmb3.09bn (we expect costs to notably decline amid easing geoeconomic tensions). The stock is trading at 24.2x 2026e and 14.9x 2027e P/E. Given possible earnings growth in 2027, we maintain our target price at Rmb67.9. Our TP implies 34.8x 2026e and 21.5x 2027e P/E, offering 44.0% upside. We maintain an OUTPERFORM rating.

Risks

Falling demand for international travel due to geoeconomic tensions; sharp rise in oil prices; longer-than-expected maintenance period for aircraft engines; disappointing growth in the number of captains.