Main viewpoints

1. Company announces 2016 annual report, net profit attributable to increase by 4.5%

Financial data: during the reporting period, the income was 40.678 billion yuan, up 15.48% from the same period last year, and the net profit attributable to it was 3.138 billion yuan, up 4.51% from the same period last year, down 14.63% from the same period last year.

Dividend situation: the company plans to pay 0.514 yuan per 10 shares, the dividend ratio is 30%, and the corresponding dividend rate is 1.5%. Operating data: the company's ASK growth rate is 25.7% year-on-year, including 19.73% domestic and 57.4% international RPK growth rate of 25.2%, 20.2% domestic and 55.1% international.

The growth rate of overall demand is slightly lower than that of supply by 0.5 percentage points, of which domestic demand is 0.5 percentage points higher and international demand 1.7 percentage points lower. The occupancy rate was 87.83%, down 0.36 percentage points from the same period last year, including 90% domestically and 80% internationally.

Other: the company's subsidy income is 865 million yuan, an increase of 14% over the same period last year, accounting for 21% of the company's total profit (the total profit is 4.062 billion yuan).

two。 Oil price and exchange rate factors lead to a quarterly loss in the fourth quarter.

On a quarterly basis, Q1-Q4 realized net profit of 14.41,2.32,17.3 and-265 million yuan respectively in 2016, with year-on-year growth rates of 56%,-66%, 95% and-152% respectively, and revenue growth rates of 10.5%, 18.9%, 18.1% and 14.7%, respectively.

The loss in a single quarter is mainly due to high oil prices and the rapid depreciation of the RMB:

A) Q4 RMB depreciated by 3.88%, with an estimated exchange loss of 754 million yuan, and Q4 depreciated by 2.08% in 2015.

B) Brent oil prices rose 14% year-on-year, and the cost is expected to increase by about 1.1 billion yuan over the same period last year.

3. Power international routes, layout of international networks

1) continue to promote the hub international network strategy: in 2016, the company opened 42 new international routes and doubled the number of international routes operated. Among them, the newly opened Beijing = Tel Aviv is the first Israeli route for Chinese airlines, and the Beijing = Manchester route is the first route between China and Britain to fly to a city outside London, adding Shenzhen as a long-distance international navigable city.

2) overseas investment and network layout. The company invests 117 million yuan to hold 9.94% stake in tap and 3.266 billion yuan to hold 27.22% stake in Azul Airlines (Azul is Brazil's low-cost airline and the third largest airline in Brazil, and HNA will be its single largest shareholder). Overseas investment will help to develop the network layout of routes in South America, Africa and Europe.

3) from the perspective of operating data, the capacity of international routes has increased significantly.

In 2016, the company's international shipping capacity increased by 57%, accounting for 21% of the total. From January to February 2017, Hainan Airlines RPK increased by 46.6% compared with the same period last year, of which 38.5% domestically and 99.4% internationally increased 49.3%, including 38.9% domestically and 109.7% internationally. The occupancy rate is 87.5%. (the statistical caliber of the data combines Tianjin Airlines and Beibu Gulf Airlines) the capacity of international routes has nearly doubled.

4. The impact of exchange rate weakens, and the impact of oil prices needs to be concerned.

A) the exchange rate impact has weakened: in 2016, the RMB depreciated by 6.83% against the US dollar, and the company lost 2.142 billion yuan, an increase of 270 million yuan over 2015.

According to the balance sheet of US dollars on December 31, 2016, the RMB fluctuated by 1%, affecting the pre-tax profit of 223 million yuan. As airlines reduce the debt ratio in US dollars, we believe that the depreciation of the RMB in 2017 will be lower than that in 2015 and 16 years (currently appreciating). Foreign exchange losses will be greatly reduced in 2017.

B) fluctuations in oil prices affect profits According to the cost of aviation oil in 2016, the price of aviation oil fluctuated by 10%, affecting the operating cost of 784 million yuan.

5. Profit forecast and valuation:

It is estimated that the attributable net profit from 2017 to 2019 is 39.01,42.1 and 4.63 billion yuan respectively, and the corresponding EPS is 0.23,0.25,0.28 yuan respectively, corresponding to PE14.7, 13.6 and 12.4 times. The current PB is only 1.02 times, with a margin of safety, we are optimistic about the supply and demand structure of the industry in 2017, especially the summer peak season, and give it a "recommended" rating.

Catalyst:

A) resolve the inter-industry competition commitment: in accordance with the provisions of national and relevant regional laws and regulations and the approval of industry authorities

All the aviation business of Grand China Airlines is timely injected into Hainan Airlines (due in August 2017), and the equity stakes in Western Airlines and Capital Airlines are injected into Hainan Airlines (due in July 2017).

B) the location advantages of Hainan International Tourism Island. The company has an obvious competitive advantage in Hainan regional aviation market. The construction of Hainan International Tourism Island, the construction and development of Sansha City and the continuously relaxed tax exemption system of outlying islands bring opportunities to the tourism economy of Hainan Island and the development of Hainan air transport industry.

Risk points: oil prices have risen sharply and the RMB has fallen sharply.