China Southern Airlines' eye-popping jump in net profit for the first half failed to impress investors yesterday as its share price fell as much as 4 per cent in Hong Kong trading before it closed at HK$3.78, down 1.8 per cent.
The carrier had reported a 54-fold increase in earnings to 2.07 billion yuan (HK$2.36 billion) on Monday, thanks to increased passenger and cargo traffic and the disposal of a maintenance unit in Zhuhai to its parent that brought in 1.1 billion yuan.
The airline's results preceded a general announcement by the Civil Aviation Administration of China yesterday that overall passenger numbers had increased 21 per cent in July to 25 million compared with a year earlier.
This brought the total number of passengers in the first seven months to 151.8 million, an increase of 18.2 per cent. The volume of cargo and mail carried by airlines gained 23.6 per cent from a year earlier in July and rose 36.2 per cent during the first seven months, the administration said.
China Southern passenger revenue rose 36.6 per cent in the first half to 30.65 billion yuan and cargo revenue more than doubled to 2.42 billion yuan.
The drop in its share price was partly due to profit taking - the stock has risen 56 per cent so far this year - mixed with concerns that the country's economy is slowing down and the competition from the national high-speed railway network will dampen demand.
China Southern has the strongest domestic network on the mainland which contributes around 85 per cent of its passenger revenue, making it the most vulnerable carrier to the challenge of the high-speed railway, said Kelvin Lau, transport analyst at Daiwa Capital Markets.
Thanks to the yuan appreciation in the first half, China Southern booked a 275 million yuan exchange gain as it cut down loan repayments denominated in US dollars. However, jet fuel costs increased 63 per cent to 10.88 billion yuan due.