Main points of investment

The fourth largest aviation department in the country, with strong aviation resources, leading the three major airlines in profitability by 2020

HNA Holdings was established in Hainan Province in 1993. After years of development and active mergers and acquisitions, HNA Holdings has gradually grown into a large national aviation department. The company has won the title of "SKYTRAX five Star Navigation Division" for 12 years (only 10 in the world). The company expanded rapidly by 2018, raising its market share from 8% to 13%. It has fallen in recent years, but it still has the fourth market share. Overall, by 2020, the company will lead three major airlines in terms of profitability:

High occupancy rate: with low prices and sales capacity, the occupancy rate remains about 85%, leading the three major 5pct flights.

High utilization rate: the utilization rate is more than 10 hours / day before 2017, leading the three major airlines by 0.6-0.7 hours / day.

Low unit cost: high utilization rate and operating efficiency diluted cost, the company's unit ASK cost is better than the three major airlines.

Low sales expenses: increase the proportion of direct sales, reduce the handling fees of air ticket agents, and the rate of sales expenses is lower than that of the three major airlines.

Focus on the national major core hub market, accounting for the first in the international private aviation department.

The company layout core hub market, the aviation network and the three major aviation overlap degree is high, the main base is located in Haikou Meilan airport, and occupies the largest time share (23 summer and autumn accounts for 35%), the market control is high. In addition, it has a share of 21% in Sanya airport, ranking second, and is expected to benefit from the increase in passenger flow brought about by the construction of Hainan free trade port; it invests the most capacity in the capital airport, accounts for 17% in the capital airport, and continues to benefit from the high-value passenger base.

The company's international line focuses on differential competition, seizing the second-tier markets in Europe and the United States, and the number of flights at Beijing Capital Airport, which is "the first door in China" before 2020, is second only to Air China, the main base. Since 2014, the company has increased its investment in international transport capacity, and the scale of the wide-body fleet has increased rapidly. by 2020, the proportion of international ASK has increased to 26%, and the share has increased to 11%. The private aviation department ranks first.

The mismatch between supply and demand and the marketization of ticket prices drive the high profit cycle

Industry supply deterministic deceleration: the Aviation Division delays the introduction plan, while the manufacturer's capacity is damaged, the leaseholder has fewer idle aircraft, and the average remaining lease life is long, and the actual number of aircraft available for rental is relatively small in the short term.

The marketization of ticket prices opens the profit ceiling: ticket price reform continues to advance, and market-regulated price routes are increasing year by year. Up to now, the main business routes led by the Beijing-Shanghai line have raised prices six times, with a cumulative increase of 73%.

Profit forecast and valuation

It is estimated that the return net profit of the company from 2023 to 2025 is-18,33 and 3.8 billion yuan, and the EPS is-0.04,0.08,0.09 yuan. With the recovery of travel demand and the continuous promotion of the marketization of superimposed fares, the company, as the fourth largest airline in China, has leading operating capacity and is expected to benefit from the aviation business cycle. Coverage for the first time, giving a "overweight" rating.

Risk hint

1) the lower-than-expected return of domestic travel leads to the lower-than-expected increase in ticket prices; 2) the recovery of the international line is less than expected; 3) the sharp rise in oil prices leads to an increase in fuel costs; 4) the devaluation of RMB leads to exchange losses; and 5) the current asset-liability ratio is too high. The pressure to repay the remaining debt after restructuring is greater.