What's new
Juneyao Airlines announced its operating data for March: Overall supply and demand in March reached 135% and 134% of those in the same period in 2019, and domestic supply and demand reached 130.8% and 130.6% of those in 2019. Overall supply and demand in 1Q24 were 138% and 137% of the 1Q19 levels, and domestic supply and demand were 135% and 137% of the 1Q19 levels. In 1Q24, available seat kilometers (ASK) were 2.61bn for international and regional flights, reaching 147% of the 1Q19 level.
Comments
PLF beats 1Q19 level; capacity for international flights hit a record high. In 1Q24, the firm's average passenger load factor (PLF) stood at 85.5%, slightly beating the 1Q19 level. The PLF of domestic flights reached 87.2%, 1.3ppt higher than the 1Q19 level. While the PLF of international flights missed the 1Q19 level by 4ppt. In 1Q24, the firm's capacity deployment for international and regional flights increased nearly 60% QoQ, hitting a record quarterly high.
CASK improves markedly YoY; proposed dividend payout shows confidence in operations. The firm disclosed in its 1Q24 results report that its cost per available seat kilometer (CASK) was Rmb0.34 in 1Q24, down 6.4% YoY and largely flat with the 1Q19 level. Given that oil prices in 1Q24 were about 40% higher than in 1Q19, we believe the firm's CASK excluding fuel and emissions (CASK ex-fuel) in 1Q24 was notably lower than the 2019 level. We think this reflects the firm's improved cost control.
In addition, the firm proposed pre-tax cash dividends of Rmb152mn as disclosed in its 2023 annual report, which we think demonstrates its confidence in operations.
Continues to increase capacity deployment for international flights, enhance utilization of wide-body aircraft, and boost earnings from international flights.
The firm opened multiple new air routes in 2023 and 2024, increasing its exposure to popular international routes and long-haul flight routes in Europe. These new routes include the Zhengzhou-Milan route (launched in 2023), Shanghai-Bali and Shanghai-Athens routes (launched in 2024), and Shanghai-Brussels and Shanghai-Manchester routes (scheduled to be launched in July 2024). We believe these efforts may enhance the utilization of Boeing 787 aircraft that will be introduced this year and boost earnings of long-haul intercontinental flights.
We believe the market may have overestimated the impact of the Pratt & Whitney engine issue on the firm's earnings. The firm was one of the first airlines in the world to receive Pratt & Whitney's (P&W) grounding notice and return its engines to factories for overhaul. We expect the progress of the firm's engine overhaul to be much faster than that of other airlines. Furthermore, we think the firm can largely delay the triggering point for engine overhaul by adjusting capacity and aircraft models during peak and slack seasons. We believe the engine issue may have limited impact on its operations during the summer peak season.
Financials and valuation
We keep our 2024 and 2025 earnings forecasts unchanged at Rmb2.10bn and Rmb2.80bn. The stock is trading at 12.9x 2024e and 9.7x 2025e P/E. We maintain our TP of Rmb16.9, implying 17.8x 2024e P/E with 37.8% upside. Maintain OUTPERFORM.
Risks
Sharply rising oil prices; sharp renminbi depreciation; slower-than- expected P&W engine overhaul.
