China Eastern Air 'sell;' FY loss seen - Merril Lynch
"The cumulative loss for the first nine months totaled 970 mln yuan. With the fourth quarter being seasonally the weakest quarter, the company's forecast of a loss for the full year looks inevitable," the brokerage said in a note to clients.
Merrill Lynch also said it believes China Eastern's lagging efforts to sell a 20 pct stake to a strategic partner are temporarily sustaining an unrealistic valuation as the company is one of the most expensive stocks in its sector.
The note said that despite higher fuel surcharges, increased subsidies, currency appreciation and strong traffic growth, operating and interest expenses have forced net profit lower.
"We believe its main problem lies in cost management," the note added.
In the third quarter, China Eastern suffered a four pct decline in operating profit, and fuel, staff and other operating expenses are rising too quickly, the note said.
The company is expected to post a loss of 1.9 bln yuan in 2006, further stretching the company's balance sheet with net debt/equity expected to reach 1,000 pct by the end of the year, Merrill Lynch said.