Spring Airlines Alert:1Q17a small miss amid soft yield and rising costs

类别:公司研究 机构:德意志银行 研究员:Fei Sun,Vincent Ha 日期:2017-05-10

17% profit decline mainly due to increase in cost base.

    Spring reported 1Q17 gross revenue growth of 23.1% YoY to RMB2.6bn on the back of 26.4% passenger traffic (RPK) growth, but partially offset by weak passenger yield, in our opinion. However, operating expenses increased 42.0% YoY on due to higher fuel cost, staff wage and increased agent commission fees, according to the company. Together with 26.7% YoY growth in net finance cost (which we believe was possibly due to increase in interest expense from enlarged loan for aircraft purchase) and a RMB0.6m investment income (1Q16: RMB23.8m investment loss), it recorded a 52.1% YoY drop in operating profit to RMB198.6m. Helped by RMB288.5m non-operating income (+69.0% YoY) mainly from local airports route subsidies, the airline’s 1Q17 net profit declined by 17.3% YoY to RMB303.3m.

    Deutsche Bank view - we expect yield to bottom in FY17.

    As Spring’s 1Q17 profit accounted for 24% of our full-year earnings estimate and 27% of consensus, we consider the results a small miss. We reduce our FY17-19E revenue by 1.4-2.2% to factor in lower yield growth. As a result, we cut our FY17-19E net profit by 8.0-12.2% due mainly to higher cost and lower margin assumptions.

    While we acknowledge the recent share price volatility given market concern on weak passenger yield for Korea and Thailand markets, we maintain Buy as we expect the airline’s yield to bottom in FY17 with load factor staying at c.92%. Our new TP is based on 3.5x average FY17/18E P/BV (from 4.0x FY17E P/BV on reduced ROE forecast), c.30% below Spring’s average P/BV of 5.3x since listing. We believe this is justified vs. sustainable ROE of about 14-15%. Key downside risks: excessive capacity addition; competition from regional LCCs and Chinese airlines; and slower-than-expected demand growth.

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