3Q25 results slightly beat our expectation

China Express Airlines announced its 3Q25 results: Revenue rose 9% YoY and 16% QoQ to Rmb2,124mn; net profit attributable to shareholders grew 32% YoY and 119% QoQ to about Rmb369mn. The firm's results slightly beat our expectations, which we attribute to better-than-expected PLF and non-fuel costs.

In 3Q25, PLF improved more than industry average; decline

in unit earnings narrowed. In 3Q25, ASK and RPK rose 15% and 19% YoY, and PLF rose 2.9ppt YoY to 86.4% (vs. an industry-wide increase of 1.2ppt, according to the Civil Aviation Administration of China). The firm's revenue per RPK fell 8% YoY in 3Q25, down 1ppt QoQ.

Operating cost per ASK well controlled. The firm's operating

cost per ASK fell 8% YoY to Rmb0.39 in 3Q25. In 3Q25, domestic ex-factory ASP of aviation kerosene fell 11% YoY and QoQ, and we estimate the firm's unit non-fuel cost also fell YoY.

In addition, the firm's other income per ASK grew 16% YoY in 3Q25 thanks to subsidies from the Civil Aviation Administration of China (CAAC) for regional routes and adjustments to its network.

Trends to watch We expect the firm's operating results to continue

improving YoY in 4Q25. We expect industry demand to remain strong in slack season, and the firm's PLF to maintain low single-digit rate growth YoY. We also expect YoY decline in airfares may narrow notably with a lower base. We expect oil prices to remain largely stable YoY.

Financials and valuation

We raise our 2025 and 2026 net profit forecasts 4% and 4% to Rmb664mn and Rmb983mn. We slightly lower our assumptions　　for capacity growth and airfare growth. Given the firm's non-fuel costs, we slightly cut our assumptions for unit non-fuel costs and oil prices for 2026. The stock is trading at 20.8x 2025e and 14.0x 2026e P/E. We maintain an OUTPERFORM rating, and lift target price 18% to Rmb13.1, implying 17x 2026e P/E (considering the firm's sustained and rapid improvement in operating performance, and the market’s improving risk appetite), offering 21% upside.

Risks

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.