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Juneyao Airlines (603885) Company Comment: Proposed Acquisition of China Eastern Airlines’ Equity Equity Method Held by Parent Company to Amplify Performance Flexibility

Juneyao Airlines (603885) Company Comment: Proposed Acquisition of China Eastern Airlines’ Equity Equity Method Held by Parent Company to Amplify Performance Flexibility

Incident Juneyao Airlines announced that it intends to pay 1 billion shares in cash to acquire 100% of the equity of GD Aviation held by the controlling shareholder Junyao Group.

Upon completion of the acquisition, the company will directly hold China Eastern Airlines1.

41% equity, and China Eastern 3 through its wholly-owned 武汉夜网论坛 subsidiary Auspicious Hong Kong3.

16% equity, held by China Eastern Airlines 3 through the proposed wholly-owned subsidiary Ji Dao Hang.

60% equity, the total shareholding ratio rose to 8.

17%.

The acquisition also needs to be approved by Juneyao Airlines shareholders meeting and Juneyao shareholders meeting.

This transaction is conducive to the equity method of accounting for long-term equity investment in China Eastern Airlines, to expand the flexibility of performance After this transaction, the company’s direct shareholding in China Eastern Airlines reached 8.

17%, which also expands the foundation for the company to obtain CEA’s board seat in the future, and is also conducive to joining the company’s strategic concept of participating shareholders after the flight, and promote the development of the main business.

If the director can be stationed smoothly, it will satisfy the company’s equity accounting requirements for China Eastern Airlines’ equity investment.

After adopting the equity method of accounting, changes in the company’s investment income will highly constrain changes in China Eastern Airlines ‘net assets, so China Eastern ‘s profitability has a significant impact on the company ‘s investment income subjects.

According to the consensus profit forecast of the recent month, China Eastern Airlines’ net profit attributable to mothers in 2020-2021 is expected to be 7.3 billion, 80 billion, according to 8.
.

The 17% shareholding ratio is expected to achieve the equity method of accounting by 2020. It is roughly estimated that 2020-2021 will bring about 600 million and 700 million investment income to Auspicious, which will improve performance.

It does not rule out subsequent holdings of Junyao Group.

China Eastern Airlines may announce 9% equity purchase of China Eastern Airlines in early November 2019. Juneyao Group and JD. Airlines have all entrusted Juneyao Airlines with voting rights to Juneyao Airlines.From the date of Yao Group’s subscription to the shares acquired by JD Airlines to the date of no longer holding the shares of the company.

At present, the company wholly-owned acquires GD Airways, so it is not ruled out that it will further hold 1 on Junyao Group.

9% possibility of acquisition of China Eastern Airlines.

Continue to be optimistic about the development path of Juneyao Airlines under the constraints of B737MAX grounding and time control, and with the recovery of demand, it is expected that the entire industry will still be in a high economic range.

The company will continue to maintain a high level of growth in the next two years. Considering the rich network of replacement routes, wide-body aircraft launch options are more flexible, and with the continuous breakthrough of the market price policy of the consumer price, it is expected that the company’s unit income quality will remain stable.The cost side has benefited from the improvement of wide-body machine utilization efficiency and favorable policies to survive the painful period, and it will continue to optimize in the future to drive continuous growth in performance.

After the equity method accounts for the equity investment in China Eastern Airlines, the flexibility of the company’s performance has been further enlarged, which is expected to exceed market expectations.

The investment proposal is aimed at the company’s long-term equity investment in China Eastern Airlines that has not yet been accounted for using the equity method, and taking into account the uncertainty of cost provision in the fourth quarter, which is quoted in the third quarterly report. We do not modify the profit forecast for the time being.Net profit attributable to mothers was 13, respectively.

700 million, 18.

0 billion, 20.

700 million, maintain “Buy” rating.

Risk warning: macroeconomic fluctuations, incremental oil price fluctuations, security accidents, reconstruction risks