2025 results beat our expectations

Juneyao Airlines announced its 2025 results: In 2025, revenue rose 1.8% YoY to Rmb22.50bn, and net profit attributable to shareholders grew 13.7% YoY to Rmb1.04bn. In 4Q25, revenue rose 9.0% YoY to Rmb5.02bn, and attributable net loss narrowed Rmb306mn YoY to Rmb50mn. The firm's results slightly beat our expectations, mainly due to better-thanexpected cost control.

Low daily aircraft utilization rate weighed on gross margin; expense control improved. In 2025, the daily utilization rate of the firm's aircraft fell 6.4% YoY to 9.64 hours. Gross margin fell 1.66ppt YoY as low aircraft utilization led to higher unit cost. Expense ratio fell 1.35ppt YoY to 11.37%, mainly due to substantial reduction in financial expenses.

The firm remains committed to rewarding shareholders through dividends and share buybacks. The firm's cash dividends and share buybacks with cancellation totaled Rmb611mn in 2025, including Rmb430mn in cash dividends and Rmb181mn in repurchased and cancelled shares. The cash dividend payout ratio stood at 41.4% in 2025. The firm continues to strengthen shareholder returns.

Trends to watch

Capacity growth remains at a low level, but may recover in 2026. The firm's available seat kilometers (ASK) rose 2.1% YoY in 2025, primarily due to the grounding of some aircraft caused by the return of Pratt & Whitney engines to factories for maintenance. As engine-related issues are likely to be gradually resolved starting in 2026, we believe the firm’s aircraft utilization is likely to rebound, and capacity deployment could accelerate. We expect YoY capacity growth to exceed 5% in 2026.

Financial expenses continue to drop; earnings quality likely to improve. The firm's full-year financial expenses fell 29.5% YoY to Rmb1.03bn in 2025, with financial expenses down 46.9% YoY to Rmb234mn in 4Q25. We attribute this to the firm's efforts to reduce high-interest US dollar-denominated liabilities and replace them with low-interest renminbi-denominated liabilities. We expect financial expenses to further decline as the firm further optimizes its liability structure, which should boost its net profit.

Financials and valuation As international oil prices have risen sharply since the start of 2026, we lower our 2026 earnings forecast 63.3% to Rmb706mn and introduce our 2027 earnings forecast at Rmb2.10bn (we anticipate substantial cost reductions with the easing of geopolitical tensions). The stock is trading at 37.6x 2026e and 12.6x 2027e P/E. Given earnings growth in 2027, we keep our TP unchanged at Rmb14.5, implying 44.8x 2026e and 15.0x 2027e P/E and offering 19.3% upside. We maintain an OUTPERFORM rating.

Risks

Sharp rise in oil prices due to geopolitical conflicts; disappointing earnings from international business; renminbi depreciation.