Incident: China Eastern Airlines announced third-quarter results. Net profit attributable to parent company owners for the third quarter of 2024 was 2.63 billion yuan, down 28.18% year on year; operating income was 38.386 billion yuan, up 6.23% year on year, and the results were in line with expectations.

Operating data: 2024Q3 is a peak season for the aviation market. Travel demand is strong, and China Eastern Airlines' operating data continues to improve.

According to the company's announcement, the company's Q3 overall ASK was +13.69% year-on-year, the overall RPK was +16.62% year-on-year, and the occupancy rate was +2.11 pct year-on-year. Domestic: The company's traffic volume grew higher than capacity, and the domestic passenger occupancy rate recovered slowly. In 2024Q3, domestic ASK recovered to 121.07% in the same period in 2019, -1.87% year on year; domestic RPK recovered to 124.45% in the same period in 2019, +9.97% year on year 23; domestic passenger occupancy rate was +2.33pct compared with year 19, +9.31pct year on year 23; domestic passenger traffic recovered to 114.26% in the same period in '19, +9.02% year on year; International: The company developed new destinations in Europe, and international capacity investment surpassed pre-pandemic levels. The company's international ASK recovered to 100.69% in the same period in '19, +179.85%; international RPK recovered to 101.84% in the same period in '19, +192.99% year on year; international passenger occupancy rate reached 81.54%, +0.93pct compared to '19, +5.49pct year on year 23; international passenger traffic recovered to 104.14% in the same period in '19, +92.68% year on year 23.

Fleet size: According to the company's announcement, as of the third quarter of 2024, China Eastern Airlines's total fleet size reached 790 aircraft, an increase of 12% over the same period in '19 and an increase of 1.2% over the same period in '23.

Financial data: Revenue - According to the company announcement, China Eastern Airlines' 24Q3 revenue was 38.386 billion yuan, +6.3% year on year 23, and achieved total revenue of 102.585 billion yuan in the first three quarters, +20% year on year; based on operating revenue/RPK, the company's Q3 passenger kilometer revenue was 0.57 yuan, -4.91% year on year 19, and -15.72% year on year 23, and ticket prices dropped significantly. Cost - According to the company announcement, China Eastern Airlines' 24Q3 operating cost was 33.643 billion yuan, or 0.42 yuan, a unit cost of 0.42 yuan, +7.43% year on year 19, and -2.61% year on year 23. The unit cost for the first three quarters was 0.43 yuan, +8% year on year 19 and -5% year on year 23. Profit - According to the company announcement, China Eastern Airlines achieved net profit of 2.63 billion yuan to mother in 24Q3, a year-on-year decrease of 28%. Net profit attributable to shareholders of listed companies in the first three quarters was -0.138 billion yuan, and losses narrowed sharply year on year (loss of -2.607 billion yuan was recorded in Q3 last year). Exchange profit and loss - RMB appreciated 1.7% against the US dollar in the third quarter of 2024, and the company received certain exchange gains. Q3 financial expenses were -29.06% compared to the same period in '23.

Investment analysis opinion: Affected by factors such as the pace of international recovery still slower than expected and the relatively sluggish air fare performance this year, we adjusted the year-on-year growth rate of domestic ticket prices to -13% (the original assumption was -5%). Airline performance fluctuated greatly with changes in ticket prices and oil transfers, and considering that the market fare level was still sluggish since the off-season in the fourth quarter, the 24-26E profit forecast was lowered to 1.675/4.654/8.143 billion yuan (the original forecast was 5.444/9.734/12.376 billion yuan), corresponding to the company 24-26E PE-51/18/11x China Eastern Airlines' short-term profitability is affected by the slow recovery of some international routes and insufficient utilization of wide-body aircraft. However, with the further recovery of international routes, the domestic market supply and demand structure will gradually improve in 25-26 years after the release of domestic capacity, and airline revenue levels and aircraft utilization rates are expected to increase. Assuming complete normalization in '26, the current market capitalization forecast PE is 11X, which is still below the historical valuation center of the three major airlines, maintaining a “gain” rating.

Risk warning: Oil exchange fluctuates greatly, macroeconomic growth falls short of expectations, international recovery falls short of expectations, air crashes and other emergencies