Core view 2016H1 achieved a 14.28% increase in operating income of 18.995 billion yuan, an increase of 14.22% in operating costs of 14.026 billion yuan, a 4.42% increase in net profit of 1,673 billion yuan, a decrease of 0.39% in net profit of 1,317 billion yuan after deduction, a decrease of 3.79% in EPS: 0.137 yuan/share, and a decrease of 0.92% after deduction of EPS: 0.108 yuan/share. Competition for international routes has intensified, and the high share of domestic routes helped the company achieve ASK investment of 43.867 billion kilometers (+23.41%) and RPK 38.671 billion passenger kilometers (+22.80%) during the reporting period. The overall passenger occupancy rate maintained a high level of 88.15% (-0.44%). Looking at the subregion, ASK for domestic routes increased by 18.1% year on year, passenger occupancy rate of 89.74% was basically the same as last year, and passenger kilometer revenue fell 5.5% year on year to 0.46 yuan/passenger kilometer. ASK for international routes increased significantly year-on-year, with an increase of 57.82%. However, due to increased competition and the unstable international situation affecting demand, the passenger occupancy rate fell 2.08% to 81.17%, and passenger kilometer revenue fell 14.61% year on year. Although the profit situation for international routes is not optimistic this year, the company's high share of domestic routes has played a role in stabilizing performance. Even with this year's significant year-on-year increase in international route capacity investment, the company's domestic route capacity investment still accounted for 81.2% of total capacity, making it the highest listed airline and playing a role in stabilizing performance. The cost of aviation fuel was reduced by 11.61%, and the cost of non-aviation fuel increased by 25.71%, benefiting from a 33% decrease in the average price of aviation fuel, and a decrease of 28.14% year over year in ASK aviation fuel costs for corporate units. Therefore, although the overall ASK in the first half of the year increased 23.41% year on year, aviation fuel costs fell 11.61% year on year to support profits. Along with the accelerated investment of capacity, production costs also rose at the same time. The company's non-aviation fuel costs of 10.681 billion yuan increased 25.71% during the reporting period, the total cost was 14.026 billion yuan (+14.22%), and the exchange loss was 637 million yuan. Excluding the same increase in exchange operating profit by 44.07%, the company's dollar debt of 32.4602 million yuan at the end of the reporting period (32.7859 million yuan at the end of 2015) depreciated 5% per dollar, and the company's net profit before tax decreased by 1,469 billion yuan. The depreciation of the RMB exchange rate against the US dollar in the first half of the year caused the company to incur exchange losses of 637 million yuan, and the exchange revenue for the same period last year was 69.56 million yuan. Excluding the impact of foreign exchange, the company's operating profit increased by 44.07% in the first half of the year, ticket sales agent fees saved 256 million yuan, helped sales expenses decreased by 20.10%, and sales expenses were reduced by 20.10% to 782 million yuan during the reporting period. The company's sales expenses decreased by 20.10% year on year to 782 million yuan, mainly due to the company's sharp increase in direct sales ratio, which reduced ticket agency fees by 256 million yuan to 1,026 million yuan. Investment recommendations We expect the company's EPS in 16-18 to be 0.29, 0.34, and 0.41, corresponding to PE: 11.7X, 9.9X, and 8.3X, maintaining the “buy” rating. Risks suggest that aviation demand falls short of expectations, the RMB depreciates sharply, and oil prices rise sharply;