Incidents:

On August 21, 2023, Hainan Airport released its semi-annual report for 2023, 1H2023. The company achieved revenue of 3.37 billion yuan/yoy +48.81%, net profit of 583 million yuan/yoy +807.55%, net profit of 583 million yuan/yoy +807.55%, after deducting net profit of 478 million yuan/yoy +1350.75%.

Among them, in 2Q2023, the company achieved revenue of 2.111 billion yuan/yoy +96.23% and net profit of 350 million yuan, compared to -111 million yuan in the same period last year; after deducting non-return net profit of 281 million yuan, the same period last year was -39 million yuan.

Key points of investment:

Travel demand continued to recover. 2Q2023 revenue increased by 67.62% month-on-month, and was catalyzed by factors such as the continued release of post-epidemic backlog travel demand compounded by “5.1” holidays, etc., and 2Q2023 travel demand to the island maintained a relatively rapid recovery trend. The passenger throughput of 1H2023 Sanya Phoenix Airport in the first half of the year was 11.2429 million passengers/yoy +105.27%, recovering to 108.02% of the same period in 2019. Of these, 2Q2023 completed a passenger throughput of 5047,600 passengers/yoy +266.27%, recovering to 118.87% in the same period in 2019. The diversification of the superimposed real estate business continues to advance. 1H2023's revenue increased by nearly 50% year on year. Among them, 2Q2023 revenue rose 1,035 million yuan year on year to 2.111 billion yuan, an increase of 852 million yuan over the previous month, a new quarterly high since 2021.

Looking at the spin-off, the company's various business performances in the first half of 2023 are as follows:

① The airport business achieved revenue of 956 million yuan and total profit of 317 million yuan.

This includes revenue related to duty-free sales at Sanya Phoenix Airport of 120 million yuan, respectively, franchise revenue of 84 million yuan obtained through the provision of duty-free shop space leases and 36 million yuan of franchise revenue obtained by providing duty-free pick-up point leases. In addition, the company also achieved investment income of 115 million yuan by participating in the Sanya Phoenix Airport Duty Free Shop.

② Tax exemption and commercial business achieved revenue of 140 million yuan and total profit of 126 million yuan.

Among them, Island Commercial achieved revenue of 58 million yuan by providing space leases for duty-free shops, and Island Commercial achieved investment income of 63 million yuan by participating in duty-free shops at Haikou Meilan Airport.

③ The real estate business achieved revenue of 1,522 million yuan and total profit of 295 million yuan.

Expense rates improved slightly month-on-month, and profitability reached another level

On the cost side, the company's operating costs in the first half of 2023 increased by 479 million yuan year-on-year to 1,871 million yuan/yoy +34.89%. On the cost side, the company's sales/management/finance expense ratio for the first half of 2023 was 2.32%/10.20%/8.12%, respectively, and -0.20/-2.81/-3.54 pcts; of these, 2Q2023 sales/management/finance expense ratio was 1.88%/8.37%/8.01%, with year-on-year changes of +1.33/-5.82/-5.48pcts, respectively. Driven by factors such as the continued recovery of the main aviation industry and the steady elimination of the real estate business, the company's net profit for the first half of the year increased by 519 million yuan to 583 million yuan over the previous year. Of these, 2Q2023 net profit increased 361 million yuan to 350 million yuan year-on-year, turning losses into profits.

Enjoy the free trade port policy and look forward to an overall acceleration of growth

As a high-quality hub airport and duty-free commercial property holder on the island, Hainan Airport's passenger traffic at Sanya Phoenix Airport has exceeded the same period in 2019 since the beginning of the year. From the start of the summer travel season on July 1, 2023 to August 24, the number of flights at Sanya Phoenix Airport reached 118.21% of the same period in 2019. Currently, the construction of the T3 terminal at Sanya Phoenix Airport is currently in the stages of revising general regulations and setting up projects. After it is put into operation in the future, the airport's annual guaranteed capacity will increase to 270-30 million passengers. Compared with the current situation, there is still room for an increase of nearly 30%, and the growth potential of the company's main airport business will be further unleashed.

As the construction of the Hainan Free Trade Port continues to advance, the company's collaborative advantages in various business formats, such as the free trade port airport hub and the benchmark commercial resources of Haikou Riyue Plaza, will continue to be highlighted. The second phase of the Sanya Phoenix Airport Duty Free Shop French Garden has now been completed and is expected to open within the year; at the same time, the renewal contract between the company and CDF Haikou Riyue Plaza Duty Free Shop has also been successfully implemented. The 2023-2025 rent standard has been optimized from the original fixed rent to the form of “annual guarantee amount+monthly sales commission rate of 3%”, of which the 2023 guarantee amount is 75 million yuan. Benefiting from the continuous release of free trade port demand dividends and the continuous implementation of the “one, two wings, two engines” strategy, we look forward to an overall acceleration in the company's future growth.

Profit forecast and investment rating: The company's operating income for 2023-2025 is estimated to be 63.08, 6.747 billion yuan, and 7.457 billion yuan respectively, and net profit attributable to income of 1,032, 15.14, and 1,826 billion yuan, respectively. The corresponding PE is 44.28, 30.18, and 25.03 times, respectively. The company has a hub airport on the island and is tax-free and high-quality core assets. It is expected that it will continue to benefit from the development dividends of the free trade port. It can be expected to have room for long-term growth and maintain its “increase in holdings” rating.

Risk warning: 1) At the macro level, the economic growth rate has slowed sharply, and the epidemic has been repeated again; 2) At the industry level, the outlying islands tax exemption policy has changed, and aviation fees have changed; 3) At the company level, the removal of real estate inventories has fallen short of expectations, the opening progress of duty-free shops has fallen short of expectations, there is uncertainty about when T3 is put into operation, debt risk has increased, etc.; 4) If the data in this report does not match the company announcement, the company announcement shall prevail.