[ET Net News Agency, 23 April 2018] HSBC Global Research cut its target price for China
Southern Airlines (CSA)(01055) to HK$5 from HK$5.8, and reiterated its "reduce" rating.
The research house said cut its 2018-20 earnings forecasts by 31-45%, mainly to reflect
higher costs. In 2018, HSBC now forecast a 30% decline 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 said CSA has a relatively higher sensitivity of EBIT and profits to passenger yield
changes versus its peers. We attribute this to its relatively thin margin. CSA continues
to expand aggressively with guidance for 15% overall passenger capacity growth and 17%
growth in domestic ASK in 2018. (KL)