2024 results in line with market expectations; 1Q25 results slightly beat market consensus

The firm announced its 2024 and 1Q25 results: Revenue rose 30% YoY to Rmb6,696mn in 2024; net profit attributable to shareholders reached Rmb268mn (vs. -Rmb965mn in 2023), in line with market expectations. In 1Q25, revenue rose 10% YoY to Rmb1,774mn and net profit attributable to shareholders grew 232% YoY to Rmb82mn, beating market expectations, which we attribute to better-than-expected cost and other gains.

The firm turned profitable in 2024. In 2024, the firm's ASK and RPK rose 33% and 41% YoY, and its PLF rose 4.2ppt YoY to 79.6%. The firm's revenue from distribution to individuals and institutions rose 30% and 50% YoY, and its RPK dropped 7.5% YoY to Rmb0.41. On the cost side, the firm's unit fuel cost fell 8% YoY in 2024, and its unit non-fuel cost declined 12% YoY. The firm recognized other income of Rmb528mn in 2024, up 47% YoY, which we attribute to the Civil Aviation Administration of China's revised subsidy policy for regional routes and the firm's recognition of Rmb194mn in subsidies for regional routes in 2024. In addition, the firm recognized investment income of Rmb148mn in 2024, mainly benefiting from the sale of stakes in subsidiaries.

Operating improvement, cost control and other gains help 1Q25 earnings rise substantially YoY, but airfares were likely weak. In 1Q25, the firm's ASK and RPK rose 24% and 28% YoY, and its PLF rose 2.7ppt YoY to 79.8%. In 1Q25, its revenue grew 10% YoY, slower than RPK growth, possibly due to weak airfares, in our view. The firm's operating cost per ASK fell 8% YoY to Rmb0.40, which we attribute to falling oil prices (ex-factory price of aviation kerosene fell 10% YoY in 1Q25) and improving unit non-fuel costs. In 1Q25, its other income per unit rose 19% YoY.

Trends to watch

Captain resources continue to be replenished; capacity recovers steadily. According to the Civil Aviation Administration of China, China Express Airlines had 300 captains at end-2024, up 28 from a year ago. We expect the continued replenishment of captain resources to drive a sustained recovery in the firm's shipping capacity.

Financials and valuation

We lower our 2025 and 2026 earnings forecasts 7% and 5% to Rmb617mn and Rmb914mn, mainly due to downward revision of our airfare assumption. The stock is trading at 15.6x 2025e P/E and 10.5x 2026e P/E. We maintain our OUTPERFORM rating and target price of Rmb9.2, implying 19x 2025e P/E (we slightly raise our target P/E, given improving investor preference amid continued recovery of regional air travel), offering 22% upside.

Risks

Demand from regional routes disappoints; oil prices soar; renminbi depreciates sharply against the US dollar.