Analysis Of Equity Value Evaluation After The Mixed Reform Of China Eastern Airlines

In order to stimulate the vitality of state-owned enterprises and break the problems of rigid mechanism,low efficiency and insufficient capital of state-owned enterprises,China has always attached great importance to the reform of state-owned enterprises,In 1992,it began to introduce private capital.It has tried to introduce "the state advances and the private sector refunds" and "the state refunds and the private sector advances".Fact has proved that neither "the state advances and the private sector refunds" nor "the state refunds and the private sector advances" is the right path for state-owned enterprises reform.The "Decision" of the Third Plenary Session of the 18 th CPC Central Committee proposed to "actively develop the mixed ownership economy",to properly handle the relationship between the government and the market,and to elevate the mixed ownership reform to a new height.The report to the 19 th National Congress of the Communist Party of China pointed out: "Deepen the reform of state-owned enterprises,develop a mixed-ownership economy,and cultivate world-class enterprises with global competitiveness." Among them,"deepening the reform of state-owned enterprises" is the direction,"developing mixed ownership economy" is the way,and "cultivating world-class enterprises with global competitiveness" is the goal.From this,we can see that the central government has high hopes for the development of mixed ownership economy.With the support of the State-owned Assets Supervision and Administration Commission of the People’s Republic of China(SASAC),state-owned enterprises all over the country have carried out mixed-use reform one after another,setting a benchmark for such mixed-use reform as China National Petroleum Corporation and China Unicom.As a typical representative of state-owned enterprises,China Eastern Airlines has been operating steadily and its net profit has been rising steadily since it went public in 1997.It is the first state-owned airline to carry out the mixed reform,which shows the firm determination of the State-owned Assets Supervision and Administration Commission(SASAC)on the road to marketization of state-owned enterprises.As one of the three state-owned holding airlines,China Eastern Airlines has strong strength,and the mixed reform is difficult and complicated.Therefore,the analysis of its equity value is of great significance.It not only enriches the research results in the fields of mixed ownership reform and equity value evaluation,but also provides reference for equity value evaluation in the mixed reform,improves the management level of state-owned assets,and helps investors to make value investment.In this paper,the case study method is used to briefly introduce the development status of China Eastern Airlines,core competitiveness,mixed transformation process and mixed change reasons.Then,it elaborates the advantages and disadvantages of four methods of equity valuation,namely cost method,market method,income method and real option method,as well as their application scope.According to the actual situation of China Eastern Airlines,the FCFF model of income method is selected to evaluate the equity value.In the process of equity value evaluation,the data needed in the valuation model of China Eastern Airlines are collected and sorted out.The weighted average cost of capital is used as the discount rate of the model to predict the future free cash flow,and the enterprise value is calculated accordingly.Subtract the value of China Eastern’s underlying net debt from the enterprise value and you get the equity value.Through the analysis of the equity value of China Eastern Airlines before and after the mixed reform,it is found that the equity value of China Eastern Airlines after the mixed reform is lower than that before the mixed reform.There are three main reasons for the decrease of equity value :(1)The ownership structure has not been solved after the mixed reform;(2)China Eastern Airlines takes mixed-use reform more as a means of financing;(3)The introduction of private capital causes marketization risks.Finally,some suggestions are put forward for China Eastern Airlines,state-owned asset management institutions and investors.Suggestions for China Eastern Airlines are as follows :(1)Continue to promote mixed reform;(2)Deepening structural and institutional reform;(3)Pay attention to preventing potential risks in the process of mixed reform;(4)Improve the internal mixed reform system;(5)Matching and constructing supporting facilities in the process of mixed-use reform.Suggestions for state-owned asset management institutions :(1)Pay attention to property rights protection in the process of promoting mixed-use reform;(2)Improve the mixed-use reform system in the management of state-owned assets.Suggestions to investors are :(1)Investing is not speculative,stick to the principle of rationality;(2)Always be alert and cautious.