Results Review

1Q26 results in line with our expectation Juneyao Airlines announced its 1Q26 results: Revenue rose 4.5% YoY to Rmb5.98bn; attributable net profit grew 27.7% YoY to Rmb0.44bn; and recurring attributable net profit increased 75.4% YoY to Rmb0.46bn. The firm's 1Q26 results are largely in line with our expectations.

Capacity expansion accelerated in 1Q26; we expect ASK to grow more than 5% YoY in 2026. In 1Q26, the firm's ASK grew 3.7% YoY, higher than the growth rate in 2025 (2.1%), with domestic ASK rising 5.4% YoY. This was mainly because some of the firm’s aircraft completed maintenance and resumed operations, driving up its capacity. We expect the firm's ASK to grow more than 5% YoY in 2026.

Financial expenses continued to decline. In 1Q26, the firm's financial expenses fell 25.9% YoY to Rmb214mn, mainly due to lower interest expenses amid improving debt structure and higher FX gains amid renminbi appreciation.

Trends to watch

Pressure from engine issue likely to ease notably in 2026. The firm has grounded some aircraft since 2023 due to the Pratt & Whitney engine issue, and the tight global aircraft supply chain has led to long engine maintenance cycles, weighing on the firm’s capacity. We expect the number of aircraft grounded by the firm due to the engine issue to decline notably in 2026, its aircraft utilization rate to recover, and its capacity expansion to accelerate.

Income of international flights may improve as demand for European flights grows and the firm optimizes the structure of international flights. The firm currently has flights to five destinations in Europe: Helsinki, Milan, Athens, Manchester, and Brussels. Since 2025, the firm has made efforts to reduce intercontinental flights with weak performance. Given rising demand for direct flights to Europe, we expect income of the firm's intercontinental flights to improve markedly in 2026.

Financials and valuation

We keep our 2026 and 2027 earnings forecasts unchanged at Rmb0.71bn and Rmb2.1bn, and the stock is trading at 35.8x 2026e and 12.0x 2027e P/E. We maintain our TP of Rmb14.5, implying 44.8x 2026e and 15.0x 2027e and offering 25.1% upside. We maintain OUTPERFORM rating.

Risks

Sharp rises in oil prices due to geoeconomic tensions; disappointing income of international flights; renminbi depreciation.