China Eastern Airlines released its 2024 interim report on August 30, 2024:

In 2024, the company achieved a net loss of 2.768 billion yuan to mother, and realized a net loss of 2.967 billion yuan after deduction; in 2024 Q2, a net loss of 1.965 billion yuan was achieved, and a net loss of 1.996 billion yuan was deducted from non-mother, a significant reduction in losses compared to the same period in 2023.

In 2024 H1, the company continued to optimize and improve the flight network layout, vigorously improve the recovery rate of international flights, continuously optimize sales strategies, and increase passenger aircraft abdominal cabin revenue. The company's production and operation showed a rapid recovery trend. The specific performance is as follows:

H1 in 2024, net increase of 10 aircraft. As of 2024 H1, the company operated 792 airliners (excluding business jets), a net increase of 10 over the end of 2023, with an average age of 9.0 years.

In 2024, the resumption of H1 international routes accelerated, and passenger occupancy levels increased significantly. In 2024 H1, the company's cumulative seat kilometers (ASK) and passenger turnover (RPK) recovered to 110% and 108% in the same period in 2019, respectively, up 33% and 50% from the same period in 2023. Its domestic routes ASK and RPK recovered to 120% and 118% respectively in the same period in 2019, up 5% and 19% respectively from the same period in 2023; international routes ASK and RPK recovered to 91% and 89% in the same period in 2019, respectively, up 270% and 347% from the same period in 2023. In 2024 H1, the company's average occupancy rate was 81.21%, up 9.45 pct from H1 in 2023, and down 1.46 pct from the same period in 2019.

In 2024, the H1 unit cost decreased by 7.35% year on year, and ticket prices decreased by 12.77%. In 2024, H1's unit ASK cost was 0.43 yuan, down 7.35% from the same period in 2023, or 109% in the same period in 2019. H1 passenger kilometer revenue in 2024 was 0.526 yuan, down 12.77% from the same period in 2023 and 2.53%; its domestic passenger kilometer revenue was 0.530 yuan, down 0.56% and 8.93% from the same period in 2019 and 2023 respectively; international passenger kilometer revenue was 0.501 yuan, down 34.60% from the same period in 2023, up 9.39% from the same period in 2019; regional passenger kilometer revenue was 0.722 yuan, down 4.37% from the same period in 2019 and 2023, respectively. 11.52%

H1's performance in 2024 was affected by the depreciation of the RMB exchange rate. On H1 in 2024, the company's net exchange loss was $0.378 billion. According to the company's disclosure, if other conditions remain unchanged, as of June 30, 2024, if the RMB exchange rate appreciates 1% against the US dollar, the company's total profit will increase by 0.283 billion yuan.

Invest capital into Shanghai Airlines to absorb and merge One, Two, and Three Airlines. The company plans to increase the capital of its wholly-owned subsidiary Shanghai Airlines by RMB 4.5 billion to enhance Shanghai Airlines' capital strength and reduce its balance ratio. After the capital increase is completed, the company's shareholding ratio in Shanghai Airlines remains unchanged, and the scope of the company's consolidated statements will not change. In addition, the company will absorb and merge its wholly-owned subsidiaries One, Two, and Three Airlines. This merger will help optimize the company's management structure, shorten the management chain, improve management efficiency, reduce management costs, and integrate the ARJ21 fleet into the unified operation of the company's large fleet. The above capital increase and absorption and merger will not have a significant adverse impact on the company's financial position and operating results.

Repurchase shares and reduce registered capital. The company plans to repurchase shares through centralized bidding transactions with its own funds. The repurchase amount for A shares and H shares is not less than RMB 0.25 billion (inclusive) and not more than RMB 0.5 billion (not included). The maximum repurchase prices for A shares and H shares are HK$4.39 per share and HK$3.04 per share (equivalent to approximately RMB 2.76 per share; the price of each H share repurchase must not be higher than 105% of the average closing price of the company's H shares in the 5 trading days before the repurchase). The company's share repurchase shows management's confidence in the company's future development prospects and recognition of the company's long-term value, which is expected to enhance market confidence and increase earnings per share.

Profit forecast and investment rating: Due to the current loose supply in the industry and declining ticket price levels, we lowered our profit forecast. We expect the company's net profit to be 2.1/7.1/9.3 billion yuan in 2024-2026 (previous value: 4.1/8.7/9.7 billion yuan), respectively, corresponding to P/E: 40.1X/11.8X/9.1X. Considering that the company is the two largest carriers in Shanghai, first-tier cities have obvious advantages in mutual flight routes, and the influence of favorable factors such as share repurchases, it maintains a “buy” rating.

Risk warning events: macroeconomic downside risk, oil price increase risk, exchange rate fluctuation risk.