[ET Net News Agency, 23 April 2018] HSBC Global Research cut its target price for China
Eastern Airlines (CEA)(00670) to HK$4.6 from HK$5, and reiterated its "reduce" rating as
it expects 2018 to remain challenging for CEA on passenger yields and load factors.
The research house said cut its 2018-20 recurring earnings forecasts by 10-11%, mainly
to reflect higher costs. In 2018, HSBC now forecast an 11% declined in recurring profit
compared to 2017 (versus flat recurring profit, previously).
HSBC said jet fuel prices denominated in USD were on average 24% higher y-y in 1Q,
albeit this will likely be partly offset by an 8% y-y appreciation in the RMB, resulting
in a net 16% increase in fuel prices for the Chinese airlines.
Also the 2H results point to higher unit costs driven by maintenance and personnel cost
inflation, and HSBC assumed a 2% y-y increase in unit costs excluding fuel, SG&A and
business taxes.
HSBC expects CEA to be the most vulnerable among the big three players, given its
relatively thin margins and lower exposure to USD-denominated debt. (KL)