China Aviation
China Aviation
Name of Stock 1：中國東方航空 China East AirStock Code：0670
Name of Stock 2：中國國際航空有限公司 Air China Limited
Stock Code：0753
Name of Stock 1：中國南方航空有限公司 China Southern Airlines Company Limited
Stock Code：1055
Evaluation Drive：Expectation of relaxation of future oil price tendency
Business：Aviation
Risk Factors (Systematic Risk)
i) Flucturation of jet fuel cost, as it is the main cost of the business
ii) Increase competition since PRC expedited "Open Sky" Policy followed by WTO
iii) Flucturation of US federal interest rate, as fund are raised in US bond marketFluctuationlance in Global Trading, which affected the business seats sales and cargo and mail delivery
Benefit and Fluctuationies
i) Appreciation of RMB
ii) PRC GDP growth
iii) 08 Beijing Olympic
Individual advantages
753: First and Business Classes, high profit margin passenger services class
E-Ticketing Sales Model within 63 Domestic Cities,wiich reduce operating cost
753 and 1055: Memeber of largest 5 airlines alliance (753-Star Alliance, 1055- Sky team Alliance)
Additional Information
Forbes in 2005 rank 753 general performance at the 14th out of 2000 airlines around the Member and 753 profitability ranked 9th out of 2000 airlines around the world
Industrial width analysis
Refer to the figure below
Aviation Figures
Based on the above two figures, and several information in the intermediate and annual report.
Within 2005, 753 was able to generate similar size of sale with 1055 despite it relative smaller in size (less routes, fleets). It was because 753 is able to maintain its cost and use its assets, which would further talked below.
670 business lies more on mail and cargo carry compare with 753 and 1055. While 1055 relied heavily on domestic revenue. Therefore, 1055 would benefit the most in the PRC GDP growth in the future.
753 did decently on international routes, which would be indirectly contributed to its positive cash flow. As above figures shown, RPK of 753 is highest and normally international flight would has a longer distance (i.e. greater km), therefore 753 internationally flight gave it an advantage on income. However, the appreciation of RMB would have a negative effect on 753 compared to 670 and 1055 has less effect on international customer. However, on the other hand, RMB appreciation also implied a cheaper jet fuel costs in the future, so the effect of RMB appreciation is still unforessable.
1055 has a decent gross profit margin, however its maintance and aircraft and traffic servicing expense are quite high that which drive income into negative. Forfunately, the management level have intention to dealing with this problem.
Conclusion
753 profitablility is undoubtly well because of its asset management. It also exposed less on interest rate risk compared to the rest fluctuationne. However, the effect on RMB appreciation is not yet known on 753, 670 and 1055 would more likely to get benprofitabilitye 08undoubtedlyOlympic appear to benefit 753 more, with its international advantages. Therefore, 753 is a good investment pick for long term stable portfolio.
1055 has a big room for improvement and the management level appear to addressed the problems and trying to improve it. Therefore, the risk associated with 1055 is relative higher, but the future growth of 1055 is also quite brilliant. It would also be a good pick for long term investment if investors are willing to bear the risk assoicated.
670 appear to be an average firm among 753 and 1055. Which make 753 and 1055 is more attractive to pick.
posted by HK-Js @ 11:45 PM
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