2Q net loss decreased year-on-year, awaiting further improvement in the supply and demand structure; maintaining “buying” China Eastern Airlines 1H24 operating income of 64.199 billion, with net loss due to mother of 2.768 billion, net loss 2.4-2.9 billion in line with the performance forecast. 1H23 was a net loss of 6.249 billion; of these, 2Q24 had a low company base, and net loss to mother narrowed 0.481 billion to 1.965 year on year billion.

Considering that it will take time for the civil aviation supply and demand structure to recover, the revenue level has declined somewhat. We adjusted 24-26 net profit to -1.079/3.224/6.735 billion yuan (previous value: 3.684/6.839/8.526 billion yuan). Since the company is expected to achieve a breakthrough in ROE, a premium is given to A/H shares 2.5x/1.3x 2024E PB, and the BPS in 24 is expected to be 1.77 yuan, A/ The target price for H shares is RMB 4.45/HK$2.50, maintaining a “buy”.

Passenger occupancy rates have clearly rebounded year over year, and earnings levels are under pressure

The company's supply/demand increased 17.4%/32.1% in 2Q23, respectively, to 108%/107% in the same period in 2019 (1Q24 was 111%/109%, respectively), and the passenger occupancy rate was 81.8%, an increase of 9.1 pct. However, we estimate that the revenue per passenger kilometer also decreased by about 13%. A-share Caliber 2Q24's revenue was 31.01 billion, up 14.2% year over year, up 8% from the same period in 2019. Looking at 1H24 as a whole, the company's supply/demand increased by 32.8%/50.3%, passenger occupancy rate of 81.2%, and 9.4pct, respectively. However, the company's 1H24 revenue per passenger kilometer also decreased by 12.8%, up about 3% compared with 1H19. Ultimately, 1H24 revenue also increased 22.9% to 64.199 billion, more than 9% in the same period in 2019.

2Q gross profit declined year on year, but financial expenses decreased, and net profit to mother shrank year on year 2Q24 operating costs increased 15.9% to 30.775 billion. Due to continued increase in investment capacity, unit ASK cost decreased slightly by 1.3% year over year, gross profit was 0.235 billion, down 0.372 billion year on year. Furthermore, due to the stable exchange rate of RMB in 2Q24, 2Q24 financial expenses fell 1.559 billion to 1.611 billion yuan year on year. In the end, 2Q24 financial expenses fell 1.559 billion year on year to 1.611 billion yuan. The net loss for parents narrowed by 0.481 billion year over year to 1.965 billion. Looking at 1H24 as a whole, increased investment in capacity reduced ASK costs per unit by 11%, gross profit reversed the year-on-year loss of 3.057 billion to 1.742 billion, and financial expenses fell 1.367 billion to 3.027 billion yuan year-on-year, which together led to a year-on-year reduction in net loss of 3.481 billion to 2.768 billion yuan.

Adjust the target price for A shares to RMB 4.45 and the target price for H shares to HK$2.50 to maintain strong private demand during the peak “buy” 3Q24 season. Supply/demand increased by 17.1%/24.3% in July, and the occupancy rate was 83.2%, exceeding 1.2 pct in the same period in 2019. The 3Q24 profit is expected to remain high year-on-year. However, the improvement in the supply and demand structure of civil aviation was not fully reflected in the off-season. We adjusted 24-26 net profit to -1.079/3.224/6.735 billion yuan (previous value: 3.684/6.839/8.526 billion yuan) to give A/H shares 2.5x/1.3x 2024E PB, which is expected to be 1.77 yuan for BPS in 24, and HK$2.50 (previous value: RMB 4.95/HK$2.85). The industry is still recovering. Combined with full fare deregulation and the advantages of the company's main base in Shanghai, the company's profit center is expected to increase and maintain “purchases.”

Risk warning: demand recovery falls short of expectations, fleet introduction exceeds expectations, oil exchange fluctuations, safety incidents.