Friday, January 9, 2009

Robert Hsu and CEA

On October 15th Mr. Robert Hsu wrote to his $3.000/year AsiaPacificEdge subscribers:

New Buy: China Eastern Airlines
I want to recommend China Eastern Airlines (NYSE:
CEA), one of the nation's largest airline companies.

Positive Profit Outlook
Last year, China Southern made a return to profits following a poor performance in 2006. Revenues rose 13% to 42.5 billion yuan from 37.6 billion yuan in 2006, while operating profits were 244 million yuan, a sharp turnaround from 3.4 billion yuan loss a year ago.
Contributing to these profits was the airline's stronger ticket sales and strong growth in air travel demand in 2007. CEA's passenger numbers climbed 14% to 57.2 million from 50.3 million in 2006, enabling the airline to fill 74% of its seats. In addition, the strengthening Chinese yuan has reduced the repatriated value of the airlines' dollar-denominated fuel bills and debt.
I expect these factors to continue to boost CEA's profitability, and going forward, I look for a decrease fuel costs to also add to its bottom line. Crude oil prices have recently dropped more than 40% from its record high in early July. And since fuel accounts for about 40% of costs to Chinese air carriers, higher fuel surcharges also allow CEA to pass more of its fuel costs on to passengers.

Despite strong earnings momentum, the stock was irrationally sold off because of soaring fuel prices earlier this year. I believe the stock now has the opportunity to turnaround, thanks to all of the reasons we've just talked about. I want you to buy CEA under $15. I expect the stock to hit $30 in about six to eight months, which would give us profits of 100% from today's levels.

Buy price was $13.57.

CEA went down until $8.50 and then started to get up again. And here is what Mr. Robert Hsu was writing:
  • October 22nd: Buy CEA under $15.
  • October 29th: China Eastern Airlines (NYSE: CEA) reported that it experienced a record 2.33 billion yuan, or $355 million, loss for January to September. The company said that the losses were due to falling passenger numbers (especially during the Olympics) and dropping fuel prices. CEA predicts a loss for full-year 2008. But I expect air traffic to pick up near year-end. So I recommend that you continue to buy CEA under $15. [remember the Positive Profit Outlook above?]
  • November 5th: Buy CEA under $15.
  • November 12th: Buy CEA under $15.
  • November 19th: Hold CEA
  • November 26th: Hold CEA
  • December 1st: I recommend that you hold your shares of China Eastern Airlines
  • December 3rd: Continue to hold CEA for now.
  • December 10th: Continue to hold your CEA position.
  • December 11th: I recommend you to start buying CEA again under $15.
  • December 17th: Buy CEA under $15.
  • December 17th: Buy CEA on dips under $15.
  • December 31st: Sell China Eastern
    In mid-October, I recommended China Eastern Airlines (NYSE:
    CEA) as a way to take advantage of the growth in China's airlines as well as the support of the Chinese government. I recommended CEA, in particular, because the company is the largest airline in China with it accounting for approximately 21% of total commercial air traffic in China in 2007.
    Well, after China Eastern announce in early December that the Chinese government would inject 3 billion yuan ($437 million) into CEA's parent company, shares jumped nicely higher. Right now, we have a 12% gain.
    Now, while we profited nicely from the Chinese government's support, I don't think there is much more upside to come for CEA shares. The company itself is poorly managed, and even though CEA has improved its flight experience, there are few other positives to keep the stock moving up. So, I recommend we sell CEA for a 12% gain.

12% gain? Wasn't he talking about hitting $30 in about six to eight months, which would give us profits of 100% from today's levels?

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