Core Viewpoint - The report on China Southern Airlines indicates a narrowing of investment losses in Q2 2025, with a positive outlook on the profitability potential of all-cargo aircraft, leading to a "buy" rating for the company [1][4]. Financial Performance - In H1 2025, the company reported revenue of 86.3 billion yuan, a year-on-year increase of 1.8%, with a net loss attributable to shareholders of 1.53 billion yuan, compared to a net loss of 1.23 billion yuan in H1 2024 [2]. - For Q2 2025, revenue reached 42.9 billion yuan, reflecting a year-on-year growth of 6.7%, with a net loss of 790 million yuan, significantly improved from a loss of 1.98 billion yuan in Q2 2024 [2]. - The company’s pre-tax profit in H1 2025 grew year-on-year, but the net loss was primarily due to a significant provision for income tax expenses [2][4]. Revenue and Cost Analysis - The decline in passenger revenue per kilometer in Q2 2025 was narrowed to 4.9%, with domestic and international revenues decreasing by 3.9% and 8.0%, respectively, compared to Q1 2025 [3]. - The company’s unit cost decreased by 5.4% year-on-year in Q2 2025, with fuel costs showing a reduction of 22% and a slight increase in non-fuel costs by 3.7% [3]. - The logistics subsidiary, China Southern Airlines Logistics, generated revenue of 9.4 billion yuan in H1 2025, a year-on-year increase of 1.9%, although net profit decreased by 6.5% due to tariff impacts [3]. Investment Losses and Tax Implications - Investment losses in H1 2025 amounted to 320 million yuan, significantly reduced from 1.2 billion yuan in H1 2024, as the company completed its final capital injection into Sichuan Airlines [4]. - The company recorded a total profit of 600 million yuan in H1 2025, but the substantial provision for income tax expenses of 1.43 billion yuan negatively impacted net profit [4]. Future Outlook - The company maintains a positive outlook on the profitability potential of its all-cargo aircraft assets and anticipates a rebound in industry ticket prices [4]. - The net profit forecast for 2025 has been adjusted to 1.84 billion yuan, while projections for 2026 and 2027 remain at 4.24 billion yuan and 7.67 billion yuan, respectively [4].

Group 1 - Minsheng Securities issued a report on September 2, recommending Southern Airlines (600029.SH, latest price: 5.94 yuan) [1] - The report highlights that the year-on-year decline in passenger kilometer revenue is narrowing in Q2 2025, indicating potential profitability from all-cargo aircraft [1] - Unit fuel costs increased year-on-year in Q2 2025, but the decline in oil prices alleviates the pressure from rising unit costs [1] - The report notes that the investment loss from Sichuan Airlines has narrowed, but increased income tax expenses have negatively impacted after-tax profits [1]

Investment Rating - The report maintains a "Recommended" rating for the company [4][6] Core Views - The company reported a revenue of 863 billion yuan for H1 2025, a year-on-year increase of 1.8%, with a net loss attributable to shareholders of 15.3 billion yuan [1] - The reduction in investment losses from Sichuan Airlines and the decline in oil prices contributed to the improvement in financial performance [3] - The company is optimistic about the profit potential of its all-cargo aircraft and the recovery of ticket prices in the industry [4] Financial Performance Summary - For Q2 2025, the company achieved a revenue of 429 billion yuan, a year-on-year increase of 6.7%, with a net loss of 7.9 billion yuan [1] - The overall passenger revenue decline narrowed to 4.9% in Q2 2025, with domestic and international passenger kilometer revenue declines of -3.9% and -8.0%, respectively [2] - The logistics subsidiary, China Southern Airlines Logistics, generated a revenue of 94.0 billion yuan in H1 2025, a year-on-year increase of 1.9% [2] Cost and Profitability Analysis - In Q2 2025, the unit cost decreased by 5.4% year-on-year, while the unit fuel cost decreased by 22% [3] - The company recorded a pre-tax profit of 6.0 billion yuan in H1 2025, up from 1.6 billion yuan in H1 2024, despite a significant increase in income tax expenses [3] - The report forecasts a net profit attributable to shareholders of 18.4 billion yuan for 2025, with projections of 42.4 billion yuan and 76.7 billion yuan for 2026 and 2027, respectively [4][5]