Spring Airlines shares down despite 20.75pc jump in profit

Spring Airlines, the mainland’s leading budget carrier and Asia’s biggest budget carrier by market valuation, saw its share price dip on Tuesday morning after it posted a 20.75 per cent jump in net profit in its first results announcement since its listing in Shanghai in January.

The privately owned airline reported net profit of 884.2 million yuan (HK$1.1 billion) for 2014 to the Shanghai stock exchange late on Monday, up from 732 million yuan in 2013. Turnover was 7.3 billion yuan, up 11.64 per cent.

The airline’s share prices opened 4.8 per cent lower on Tuesday morning at 91.31 yuan and fell further to 91.08 yuan by 10.20am. That was still more than five times its initial public offering price of 18.06 yuan on January 21, making its market value reach 38 billion yuan, almost four times the value of AirAsia, the region’s leading budget carrier.

Analysts said the stock’s exponential growth was justified given the untapped potential of budget air travel in mainland China, which is poised to overtake the United States as the world’s largest aviation market.

China International Capital Corporation analyst Shen Xiaofeng, who set a target price of 120 yuan for the stock, forecast 36 per cent earnings growth for the airline to 1.08 billion yuan this year and another 48 per cent to 1.6 billion in 2016. A US$10 drop in Brent oil prices this year from an estimated US$60 a barrel to a likely US$50 a barrel would bring a further 20 per cent earnings boost for Spring, he said.

He said the airline’s plan to double its fleet to 100 aircraft by 2018 equates to an annual capacity addition of 20 per cent, for which there is no shortage of demand to justify.

Spring said in its annual report it carried 11.4 million passengers last year with an average load factor of 93.07 per cent.