We expect 2024 earnings to turn positive YoYWe maintain our 2024 earnings forecast for China Express Airlines at Rmb351mn, vs. a loss in 2023, with a moderate profit in 4Q24.

Trends to watch Government subsidies for regional routes and disposal of education subsidiary may bring about Rmb300mn in profit. According tocorporate filings on January 16, 2025, the firm recently received a notice from the Department of Finance of the Civil Aviation Administration of China (CAAC) regarding the 2024 subsidy budget on regional routes. The firm is entitled to government subsidies totaling Rmb194mn, which will be included in its 2024 profit and loss.

According to corporate filings on January 2, 2025, the firm has sold a 100% stake in its subsidiary Huaxia Aviation Education Technology Industry Co., Ltd. to Huaxia Yunyi International Education Technology Co., Ltd. for Rmb604mn. According to its interim report, the net book value of the subsidiary was Rmb490mn as of the end of 1H24. We expect the deal to generate gains from asset disposals for the firm.

Excluding the above factors, we expect the firm to record an operating loss in 4Q24. We assume that:

The firm's shipping capacity grew about 20% YoY in 4Q24.

Passenger load factor (PLF) improved about 7ppt YoY, but revenue passenger kilometers (RPK) declined by high single digits YoY.

Renminbi-denominated oil prices fell 20% YoY, while unit non-fuel costs edged down YoY.

The firm booked other income of nearly Rmb300mn (excluding the above-mentioned subsidies for regional routes offered by the CAAC).

Forex loss was about Rmb100mn.

Financials and valuation

We keep our 2024 and 2025 earnings forecasts unchanged at Rmb351mn and Rmb665mn. We introduce our 2026 earnings forecast of Rmb959mn,assuming a 15% YoY increase in available seat kilometers (ASK). The stock is trading at 13.8x 2025e P/E. We maintain an OUTPERFORM rating and target price of Rmb9.20, implying 18x 2025e P/E with 28% upside, as the firm's earnings are growing thanks to improved business operations.

Risks

Disappointing recovery in civil aviation demand; sharper-than-expected rise in oil prices; sharp renminbi depreciation against the US dollar; lower- than-expected government subsidies for regional routes.