Public (SHA 600029)

Company’s Fact

China Southern Airlines Co. Ltd (CSAC) is one of top three airlines in China (Mainland). The company mainly is mainly engaged in passenger airline, passenger transportation services, cargo transportation services and express post services with its strong network within China mainland, Hong Kong and Macau.  CSAC was initiated by China Southern Airline Group Company (SAGC), approved by the People’s Republic of China Economical Structure Reform Committee in 1994 and officially established on 25th March, 1995. In July 1997, CSAC launched its stock in the Stock Exchange of Hong Kong (SEHK), and New York Stock Exchange Market in the United States. CSAC launched its stock in Shanghai Stock Exchange Market as well in July 2003.

China Southern Airlines Co. Ltd. owns largest quantity in aircrafts maintaining a fleet of 332 aircrafts, which enables it to hold biggest domestic market share and runs most sophisticated air network in China.  In the end of year 2007, CSAC reformed the XinJiang Airlines (which owns West of China mainland air networks) and Northern Airlines (which owns North of China mainland air networks), along with their existing South China air networks, making a big triangle structure of the air network that came into being, which dramatically improved the competitive advantages of CSAC in Chinese airlines domestic market.

CSAC has joined ‘Sky team’ programme in November 2007, thus, to speed up its steps in moving towards its internationalization revolution. The company plans to launch 7-8 international routes such as from Beijing to London and from GuangZhou to Southeast Asian countries.  

Financial Overview

Related companies:

Guangzhou Airport HangYi Information technology Co. Ltd., Shareholder, Percentage of ownership: 39%.

HaiNan Meilian International Airport Limited Liability Company, Shareholder, Percentage of Ownership 6.73%.

Beijing Southern Airline Ground Service Co. Ltd. Collaboration, Percentage of Ownership 0%.

China Postal Airlines Co. Ltd., Collaboration, Percentage of Rights and interests: 49%.

Zhuhai Xiangyi Air Transportation Technology Co. Ltd. Collaboration, Percentage of Rights and Interests: 51%.

Zhuhai Tax-free Zone MoTianYu Aircraft Engine Repairing Co. Ltd. Collaboration, Percentage of Rights and Interests: 50%.

China Southern Airlines Group Co. Ltd. Holding Company, Percentage of Ownership: 50.3%.

Zhuhai Airlines Co. Ltd. Subsidiaries, Percentage of Ownership: 60%.

Guangzhou Baiyun International Logistic Co. Ltd. Subsidiaries, Percentage of Ownership: 61%.

Guangzhou Nanlian Airlines Food Co. Ltd.    Subsidiaries, Percentage of Ownership: 75%.

Guangzhou Air Transportation Station Co. Ltd., Subsidiaries, Percentage of Ownership: 70%.

Xiamen Airlines Co. Ltd. Subsidiaries, Percentage of Ownership: 60%.

SAGC Shantou Airlines Co. Ltd. Subsidiaries, Percentage of Ownership: 60%.

Xinjiang People’s Airlines Realty Management Co. Ltd. Subsidiaries, Percentage of Ownership: 51.8%.

Guizhou Airlines Co. Ltd., Subsidiaries, Percentage of Ownership: 60%

China Southern West Australian Flying College Pty Limited

Chongqing Airlines Co. Ltd. Subsidiaries, Percentage of Ownership: 60%.

Nanlong International Cargo transportation Co. Ltd. Subsidiaries, Percentage of Ownership: 51%.

SAGC Food Co. Ltd. Subsidiaries, Percentage of Ownership: 100%.

Sichuan Airlines Co. Ltd. Collaboration, Percentage of Rights and Interests: 39%.

SAGC Financial Co. Ltd. Collaboration, Percentage of Rights and Interests: 21.09%.

National Property Supervision and Administration Committee.  Actual Controller. Percentage of the Rights and Interests: 100%.

Stock Health

As on 14-Jul-2008  

Open: 7.55    High: 7.90      Low: 7.50        Close: 7.88          Vol: 32,833,204        

Key Stats & Ratios

                                                                                                         Unit 10,000 Yuan (RMB)      

  Comparison with Airlines Industry Average performance

Daily Stats (last one month):

DATE             OPEN HIGH LOW   CLOSE VOL

2008-07-14    7.55    7.90    7.50    7.88    32,833,204

2008-07-11    7.79    7.86    7.53    7.75    43,007,650

2008-07-10    8.01    8.15    7.80    7.87    68,874,383

2008-07-09    8.30    8.45    8.02    8.18    91,762,415

2008-07-08    8.18    8.35    7.76    8.09    133,457,217

2008-07-07    7.31    7.92    7.31    7.92    111,891,598

2008-07-04    7.12    7.33    6.98    7.20    48,955,745

2008-07-03    6.64    7.20    6.48    7.13    50,447,933

2008-07-02    6.72    6.96    6.72    6.86    19,374,713

2008-07-01    7.18    7.24    6.75    6.79    33,958,910

2008-06-30    6.64    7.38    6.61    7.12    44,123,796

2008-06-27    7.13    7.18    6.75    6.79    48,093,548

2008-06-26    7.50    7.76    7.34    7.50    75,385,341

2008-06-24    6.84    7.16    6.71    7.13    35,762,859

2008-06-23    6.58    7.03    6.42    6.80    34,004,262

2008-06-20    6.50    7.27    6.37    6.80    65,835,230

2008-06-19    7.60    7.69    7.06    7.06    40,058,074

2008-06-18    7.29    7.86    6.86    7.84    54,003,873

2008-06-17    8.15    8.18    7.31    7.39    39,044,319

2008-06-16    8.53    8.60    7.93    8.12    26,667,249

2008-06-13    8.75    9.05    8.47    8.48    38,161,102

2008-06-12    8.70    8.84    8.36    8.61   28,242,103

2008-06-11    8.88    9.10    8.58    8.84    31,180,272

2008-06-10    9.85    9.85    9.32    9.32    21,325,341

2008-06-06    10.64 10.70 10.28 10.35 22,122,919

Recently, (in July 2008) itself CSAC has exclusively launched ever first in history, cross-strait charter service between Baiyun International Airport GuangZhou and Taipei Taoyuan Airport in Taiwan. The breaking news has shocked stock market as the above mentioned route has been highly demanded by passengers in both sides of straits for decades, but direct flights were not allowed by The people’s Republic of China’s government or by Taiwan local authority for political reasons.  Passengers used to fly to a middle destination and then transfer to the other side of the straits.

The company announced that this new project will become the most profitable route among all existing routes, which assumed will as two time profitable as the existing Hong Kong-mainland and mainland - South Korea route that has a total revenue contribution of RMB 500 million Yuan per year. The company will soon enter a new fast growth period as after China’s entry of WTO, the tourism industry’s rapid growth, 2008 Beijing Olympic Games, and The World Expo in 2010 Shanghai are set to pump in good revenue for the company.

Moreover, CSAC benefits are pertaining to a great deal in Chinese Currency’s appreciation. As the payments of its international operations aircraft material rental, purchasing and repairing are dealt in US dollars, as a result, most parts of profit margin of last year were contributed by savings from currency exchange.

However, the increase in the international fuel price has put on negative effects on all airlines business leaving no exception including CSAC. According to statistics, from January to May 2008, CSAC has spend 18% more on the fuel purchasing compared to the same period in 2007. Besides this economical influence in the first half year of 2008, natural disasters like snow storm, earth-quake and political issues like Tibetan independence movement, together has had decent affect on this industry as it has reduced the demands in air transportation.

But overall story is different and its quiet fascinating to see that CSAC achieved 523% profit margin increase in such a complicated industrial environment this year. It shows the capability of profitability of the company in emergency situations and the power for sustainable growth, thus gives investor great confidence to invest for a short, medium and long term without second thought.

Editor’s review: Thumbs up!