1H25 results in line with our expectations

China Express Airlines announced its 1H25 results: Revenue rose 12.41% YoY to Rmb3.61bn, and net profit attributable to shareholders grew to Rmb251mn (vs. Rmb26mn in 1H24). In 2Q25, revenue rose 15.07% YoY and 3.48% QoQ to Rmb1.84bn, and net profit attributable to shareholders was Rmb169mn (vs. Rmb1.48mn in 2Q24 and Rmb82mn in 1Q25).

Strong passenger load factor (PLF), lower oil prices, and increased government subsidies drove significant earnings improvement in 2Q25.

Revenue: According to corporate filings, the firm’s available seat kilometers (ASK) grew 19% YoY in 2Q25. We believe the previously constraining bottleneck in captain availability-which limited aircraft utilization-is further easing. PLF increased 4.6ppt YoY to 83.2%, exceeding that in 2Q19 by 5.4ppt, demonstrating robust operational performance. We estimate revenue passenger kilometer (RPK) declined at a high-single-digit rate YoY in 2Q25, though this represents a narrowing from the YoY decline seen in 1Q25.

Cost: The ex-factory price of jet fuel fell 17% YoY in 2Q25. We estimate the firm’s non-fuel cost per ASK remained broadly stable on a YoY basis.

Subsidies: The firm recognized other income of Rmb381mn in 2Q25, equivalent to Rmb0.08 per ASK. This represents a 19% increase YoY and a 1% rise QoQ.

Trends to watch

We expect the firm to maintain solid earnings performance in 3Q25, primarily driven by three factors: 1) ASK to maintain low double-digit growth; 2) PLF to improve by low single digits YoY with a slight narrowing of the airfare decline; 3) jet fuel prices to decrease by 11% YoY.

Financials and valuation

We raise our 2025 and 2026 earnings forecasts 4% and 4% to Rmb639mn and Rmb947mn, mainly because we raise our assumptions for PLF and other income (mainly government subsidies). The stock is trading at 18.4x 2025e P/E and 12.4x 2026e P/E. Maintain OUTPERFORM. We roll over our target valuation to 2026 and raise our target price 21% to Rmb11.1,　implying 15x 2026e P/E (mainly considering long-term growth of regional airline market), offering 21% upside.

Risks

Capacity improvement disappoints; flight safety incidents; weaker-than- expected demand for regional airlines; changes in government subsidy policies; weak airfares; a sharp rise in oil prices; sharp renminbi depreciation.