春秋航空(601021)

We led SPA on a non-deal roadshow in Hong Kong to meetwith various institutional investors on Sep 5, 2017, and ourconfidence in our full-year 2017 earnings estimate is rising; itimplies a 153% YoY rebound in 2H17. Reiterate OW.

Stable 2H17 outlook: Preliminary Jul-Aug/17 results appeared to be satisfactoryto management. While SPA foresees a further passenger load factor drop of 1.5-2.0% YoY in 2H17, we expect earnings recovery after the inflection point in 2Q17.We note that lower summer PLF was led by effective ASP increases. Given a lowbase in 4Q16 led by a Rmb219mn loss, we expect meaningful earnings recovery in2H17.

Decent domestic yields: Yield performance in some tier-2 cities (Shijiazhuang,Yangzhou, Shenyang, Chengdu) appeared to be highly resilient. Capacityallocation will continue to be tilted towards domestic routes in 2H17.

Stabilizing international routes: Both yields and margins on Japanese routesbegan to improve. Despite still-weak demand, most carriers are restrainingcapacity allocations to avoid competition and support yields. Although thevolumes on Korean routes continued to tumble (-60% YoY), we think the bulk ofthat challenge has already been seen. For Thailand, as unfavorable policy towardgroup tourism remained unchanged, reasonable volume recovery was in the lowteens. New routes to expand: Vietnam, Indonesia, Philippines, Sri Lanka, andMaldives. For regional routes, SPA expected some growth in Macau in 2H17 andimproving demand to Hong Kong.

Limited fleet expansion in 2018: Due to stringent CAAC regulations, SPAexpected limited aircraft additions, at 4-6 in 2018, followed by the delivery of 12new A321 aircraft in 2019. In the near term, SPA will take delivery of 4 aircraft in2H17, vs. 7 in 1H17. Limited capacity growth means the company will need tobalance between PLFs, yields and aircraft utilization to achieve profitmaximization, in our view.

Sustainable subsidies income: In response to questions on government subsidies,management believed such income would maintain stable growth in the next 3-5years, driven by the demand of the governments in tier-2/3 cities to boostpassenger volumes in local airports. Moreover, more established airports (e.g.,Shijiazhuang) will still need to keep incentives for the airlines to help achievetheir growth targets.