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Regional Morning Notes Summary - 01 September 2017

Core Content Overview

This document provides an analysis of stock performance and company results for several firms in the China and Thailand markets, with a focus on Air China (753 HK) and Beijing Capital International Airport (694 HK). It also includes key indices, corporate events, and valuation insights.

China Market Highlights

Air China (753 HK)

• 1H17 Results:

  • Core earnings fell 60% yoy due to a 5% increase in non-fuel unit costs, which offset a 1.4% yoy rise in pax yields.
  • Total revenue rose 8.8% yoy, with pax revenue up 8.0% and cargo revenue up 19.7%.
  • Operating profit dropped 27.4% yoy, primarily due to higher fuel and maintenance costs.
  • Net profit fell 3.7% yoy, but core net profit (ex-forex) fell 59.9% yoy.
  • The company recognized forex gains of Rmb1.3b, slightly above expectations.

• Key Takeaways:

  • First class and business class demand showed recovery.
  • Management expects unit costs to remain stable in 2H17, while yields may face pressure due to increased capacity.
  • International yields were more resilient than expected, with a 3.1% yoy decline instead of the projected 4.5%.
  • Air China plans to upgrade services and adjust pricing structures on codeshare routes to Europe.

• Valuation and Recommendation:

  • Maintain HOLD recommendation and HK$7.70 target price.
  • Re-entry price is HK$7.00.
  • Valuation based on a SOTP approach with a fair value P/B of 1.2x.

• Financial Metrics:

  • EBITDA margin: 21.1% (2017F)
  • Net margin: 5.7% (2017F)
  • ROE: 8.5% (2017F)
  • Net debt/(cash) to equity: 91.1% (2017F)
  • Interest cover: 9.5x (2017F)
  • Dividend yield: 1.7% (2017F)

• Stock Impact:

  • Sustainability of yield recovery is uncertain.
  • Capacity growth in 2H17 could erode yields.
  • Analysts expect a 1% yoy increase in domestic yields and a 3% yoy decline in international yields.
  • The share price was affected by concerns over potential yield weakness.

• Corporate Events:

  • Roadshow with Sihuan Pharmaceutical, Anta Sports Products, Meidong Auto Holdings, and others in September 2017.
  • Analyst Marketing on 2H17 and Indonesia Construction Sector in Singapore.
  • Asian Gems Conference and UOB Kay Hian Annual Regional Strategy Conference in October and November 2017.

Thailand Market Highlights

IRPC (IRPC TB)

• Performance:
  • Maintains a promising outlook.
  • The stock is rated BUY with a target price of Bt6.70.

Key Indices (as of 1 Sep 2017)

Top Picks (BUY)

Key Assumptions

Company Description

• Air China (753 HK): China's flag carrier, operating over 95 domestic and 46 international/region routes.
• Beijing Capital International Airport (694 HK): A Tier-1 Category 1 airport in China, operating both aeronautical and non-aeronautical services.

Conclusion

The document highlights that Air China's 1H17 results were mixed, with core earnings down 60% yoy due to cost pressures, but pax yields showed resilience. Beijing Capital International Airport, on the other hand, reported strong performance with a 40% yoy increase in net profit, driven by higher concession revenue and lower costs. Analysts recommend BUY for BCIA and HOLD for Air China, with target prices of HK$15.70 and HK$7.70, respectively. Corporate events in September 2017 suggest continued engagement and strategic discussions.