Company Profile

    　　China Eastern Airlines Corporation Limited is a China-based company principally engaged in theprovision of airline transportation and extended services. The Company is primarily engaged in theoperation of airline passenger, cargo, mail delivery, tour operations and other extendedtransportation services. The Company also involves in general aviation transportation, aircraftmaintenance, aviation equipment manufacturing and maintenance, air transport agency for domesticand foreign airlines, other related business, part-time insurance agent services, e-commerce, airlinesupermarket, as well as commodity wholesale and retail business. The Company operates its businessin domestic market and to overseas markets. (Source: Reuters)Event

    　　China Eastern Airlines Corporation Limited (the company) published its announcement, stating thatthe controlling shareholder inked an Agreement on Capital Increase for China Eastern Airlines(hereinafter referred to as “the Agreement”) with State-owned Assets Supervision and AdministrationCommission of the State Council, National Council for Social Security Fund, China Life InvestmentHolding Company Limited, Shanghai Jiushi (Group) Co., LTD., China Reform Holdings Corporation Ltd,and China Tourism Group, in an attempt to press ahead the reforms on diversity of equity rights.

    　　Comments

    　　The company will get cash increase of CNY 31 billion in total.

    　　According to the Agreement, China Life Investment Holding Company Limited invested CNY 11 billionin cash, Shanghai Jiushi (Group) Co., LTD injected CNY 10 billion, and China Reform HoldingsCorporation Ltd and China Tourism Group invested CNY 5 billion, respectively.

    　　The listed company is expected to get capital injection to improve its financial condition.

    　　As for the following capital use, according to the announcement, the capitals are mainly used toexpand the operating scale to develop its aviation business. This move is conducive to optimizing thecapital structure and strengthening coordination with strategic investors in air insurance,transportation construction, tourism services and integration of industry and finance, realizing sustainable development.

    　　Hit by the pandemic, the company’s main business suffered great losses in H120, and it is expected toget financial support.

    　　Earnings forecast and investment recommendationIn the long run, as the biggest airlines based in Shanghai, China Eastern Airlines gets favorabledevelopment conditions thanks to the economic dynamic in the region. In the meantime, thecompany continuously optimizes its aircraft structure, actively introduces strategic investors, expandsinternational routes by virtue of Delta Airline, TTG China and SkyTeam, and deepens the stockownership cooperation with Juneyao Airlines. We expect the company to make full use of itsinstitutional advantages to improve its operating efficiency and revise its EPS to be negative CNY 0.42/CNY 0.53/ CNY 0.58 for 2020/2021/2022, implying a P/E ratio to be negative 12x/ 10x/ 9x, based onthe closing price on October 12th.

    　　Given that the hardest time has gone due to the pandemic, the profit in the third quarter is expectedto turn positive thanks to the accelerated recovery of the domestic demand in the summer holiday.

    　　Remain “Outperform”.

    　　Potential risks

    　　uncertainties incurred by the COVID-19 pandemic and the implementation of policies; greatfluctuations of exchange rates and crude oil prices; imbalanced supply and demand dynamic;uncontrollable macro economy growth; intensified international trade frictions; air crash, terroristattack, wars and the outbreak of diseasesThis English translation of the original Chinese version < 集团签订增资协议，股权多元化改革进一步推进> issued by Industrial Securities on October 13, 2020 is for information purpose only. In case ofa discrepancy, the Chinese original will prevail.

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