Item:

The company announced that during the reporting period, the revenue was 59.9 billion yuan, up 47.26% from the same period last year, and the net profit attributable was 3.323 billion yuan, up 5.89% from the same period last year, deducting 2.567 billion yuan from non-net profit, up 11.44% from the same period last year, down 13.33% from the same period last year.

Main viewpoints

1. The company released its 2017 annual report: rapid growth of capacity and consolidation of Tianjin Airlines led to rapid growth of operating data

Financial data: during the reporting period, the realized income was 59.9 billion yuan, an increase of 47.26% over the same period last year, and the attributable net profit was 3.323 billion yuan, an increase of 5.89% over the same period last year, deducting 2.567 billion yuan from non-net profit, an increase of 11.44% over the same period last year, down 13.33% from the same period last year.

Fleet data: the company operated a total of 410 aircraft at the end of the period, an increase of 172 from 238 at the end of 2016, including 101 merged with Tianjin Airlines. Excluding Tianjin Airlines, 71 aircraft were actually introduced, an increase of 21% compared with the end of 16, higher than the industry average (11.8%). The expansion of transport capacity has led to a substantial increase in the company's operating data.

Operating data:

The company's ASK grew 49.13% year-on-year, including 45.18% domestically and 65.83% internationally, including 44.35% domestically and 55.67% internationally.

The growth rate of overall demand is 3 percentage points lower than that of supply, of which domestic demand is 0.83 percentage points lower and international demand is 10.16 percentage points lower.

The occupancy rate was 86.07%, down 1.76 percentage points from the same period last year, including 89.50% domestically and 75.10% internationally.

The income of passenger kilometers increased, while that of passenger kilometers remained the same. The overall passenger kilometer income of the company is 0.455 yuan, an increase of 1.9% compared with 0.447 yuan in 16 years, and the revenue per seat kilometer is 0.392 yuan, which is basically the same as that of 16 years.

two。 Oil prices, take-off and landing costs led to a big increase in operating costs, and RMB appreciation contributed to a substantial positive return on the company's main business costs of 50.977 billion yuan, an increase of 67.16% over the same period last year, an increase of 20.48 billion yuan. Look at the project by project:

1) the cost of aviation fuel is 14.59 billion, accounting for 28.17%, an increase of 85.66% over the same period last year, with a net increase of 6.73 billion yuan.

The average price of Brent crude oil in 2017 was 54.74 US dollars per barrel, an increase of 21.3% over the same period last year (45.13 US dollars per barrel in the same period of 16 years). The increase in transport capacity and aviation fuel cost together contributed to a substantial increase in aviation fuel cost; 2) the take-off and landing cost was 7.875 billion, accounting for 15.2%, an increase of 68.9% over the same period last year, or a net increase of 3.213 billion.

It is mainly due to the increase in capacity and the increase in airport charges.

3) the rental fee is 8.615 billion, accounting for 16.63%, an increase of 98.1% over the same period last year, or a net increase of 4.266 billion.

Mainly for the increase in aircraft operating leasing and financial leasing rents.

4) Exchange contribution positive gains: 17 years of RMB appreciation (6.2%) contributed a total exchange gain of 2.095 billion yuan, compared with a loss of 2.142 billion yuan in the same period of 16 years (- 6.4%).

The company disclosed aviation fuel and exchange rate sensitivity:

The RMB appreciates or depreciates by 1% against the US dollar, affecting pre-tax profits of about 347 million yuan; every 10% increase or decrease in aviation fuel prices affects operating costs of 1.46 billion yuan.

3. The bright spot is to make a profit in the fourth quarter, and the off-season effect is usually the off-season in the aviation industry, so it is generally difficult to make a profit in the fourth quarter. The company achieved a net profit of 565 million, which is a bright spot.

1) in the fourth quarter of 17, the company achieved revenue of 14.72 billion, an increase of 49.2% over the same period last year, and operating income was second only to the peak season of the third quarter (16.7 billion), surpassing the Spring Festival travel season of the first quarter (14.5 billion). The net profit returned to the mother was 565 million, while Q4 in 16 years lost 265 million.

2) the income gap in the off-peak season is decreasing: we observe the income ratio between the fourth quarter and the third quarter (fourth-quarter income / third-quarter income), which has been declining since it reached a peak of 98% in 2010 and has remained around 83% in recent years. It rose from 83% to 88.4% in 17 years, the highest since 2013 (89%).

3) in terms of profits, looking back over the past 10 years, the company has lost money in four quarters for four years, and the net profit of 570 million yuan in 17 years is the third highest (the highest is 1.24 billion in 10 years and 703 million in 14 years).

We believe that: on the one hand, the exchange contributed positive gains in the fourth quarter, with the RMB appreciation of 1.57% in the fourth quarter; on the other hand, with the upgrading of public consumption and off-peak travel, the difference between the off-peak and peak seasons is narrowing.

4. Profit forecast and valuation:

1) at present, the company is planning a major asset restructuring, according to the announcement, the potential underlying asset management involves the main aviation industry, maintenance, flight training, hotels and other industries closely related to the company's main business. Such as Guilin Airlines, Western Airlines, HNA Hotels and other shares in whole or in part. If the transaction is completed, it will further improve the business travel industry chain and help to expand the company's business in the case of tamping the main business. Excluding this acquisition, we expect to achieve net attributable profits of 38.65,52.88 and 6.607 billion yuan respectively from 2018 to 2020, corresponding to EPS of 0.23,0.31 and 0.39 yuan respectively, corresponding to PE14, 10 and 8 times.

2) be optimistic about the location advantages of Hainan International Tourism Island. The company has an obvious competitive advantage in Hainan regional aviation market. The construction of Hainan International Tourism Island, the construction and development of Sansha City and the continuously relaxed tax exemption system on outlying islands bring opportunities to Hainan's tourism economy and the development of Hainan's air transport industry.

3) We believe that aviation has entered a new era, and the improvement of the supply and demand pattern and the marketization of civil aviation tickets will build the foundation for the continuous improvement of the aviation industry in the next 2-3 years, and aviation stocks will face a period of strategic opportunity of rising performance and valuation. Maintain the recommended rating.

5. Risk hint: oil prices have risen sharply and the RMB has fallen sharply.