Huaxia Airlines is the leader of domestic regional aviation. Huaxia Airlines is the only large-scale independent regional airline in China, which has clearly adhered to the regional strategic positioning since its establishment, and is also the leader of domestic regional airlines.
By the end of June 2023, the company had a fleet of 67 aircraft; there were 150 flight routes, of which 136 were solo routes, accounting for 91% of the company's total routes; and the route network covered 82 regional destinations, accounting for 38% of the country's regional destinations. Basically built a national regional aviation network.
Deep ploughing regional aviation market, forming differential competition. Huaxia Airlines is significantly different from the Trunk Aviation Division in terms of fleet and route structure, operation and profit characteristics. Specifically, the fleet of Huaxia Airlines is mainly regional aircraft; the proportion of regional routes is 99% (the proportion of regional routes of the trunk aviation department is about 20%); the occupancy rate and daily utilization rate of aircraft are lower than that of the trunk aviation division; the income of passenger kilometers is lower, and the cost of seat kilometers is higher. In addition to focusing on the regional market and creating the advantage of regional network resources, the company actively develops the whole business, promotes the combination of trunk and branch, catalyzes the demand of the regional line, improves the occupancy rate, and tries to obtain the whole value of the regional passenger source and improve the income level. In the first half of 2023, the number of company travelers reached 448700, accounting for 16.4% of the total number of passengers.
Institutional capacity purchase + government subsidies to lay the foundation for the company's profits. The passenger flow of regional airlines is thin, the unit cost is high, the income level is low, and the market-oriented operation is more difficult. After years of exploration, Huaxia Airlines has developed a profit model of "institutional capacity purchase + government subsidy". In 2019, institutional capacity purchases accounted for 29% of the company's total revenue, and government subsidies accounted for 95% of the total profits. Local government purchase capacity can promote local business flow, tourism, promote the overall economic development, this model has a strong sustainability, so as to ensure the stability of corporate performance. The civil aviation industry was hit hard by the epidemic in 2020, and the company was the only listed aviation company that made a profit in that year.
Regional blue sea market, leading growth is expected. The regional aviation market has high growth and wide space. The compound growth rate of passenger throughput of regional airports from 2009 to 2019 is 20.5%, which is much higher than 8.7% of the main coordinated airport. In 2019, the air travel penetration rate of regional cities is 0.18 times per person, which is much lower than the overall national level (0.47 times per person). We believe that the future regional aviation market is expected to maintain an average annual compound growth rate of about 10%. It is estimated that the passenger throughput of regional airports will reach 360 million in 2029, an increase of 157% over 2019. Huaxia Airlines, as the regional leader, also needs to introduce about 78 aircraft to support the company's future development.
Profit forecast, valuation and rating: Huaxia Airlines is the leader of domestic regional aviation, ploughing the regional market and building a differentiated route network; actively develop all-way flights, promote the combination of trunk and branch, and improve the company's revenue level; in-depth excavation of the "institutional capacity purchase + government subsidy" profit model to ensure the company's performance stability. In the medium and long term, the regional aviation market is still in the stage of rapid growth, and the future growth of the industry leader is expected. We predict that the 23-25 year net profit of the company is-720 million yuan, 800 million yuan and 1.15 billion yuan, respectively, and the corresponding EPS is-0.56,0.63,0.90 yuan. Combining relative valuation and absolute valuation, we give the company a target price of 8.79 yuan (corresponding to 24-year 14XPE), covering the "overweight" rating for the first time.
Risk tips: subsidy policy change risk; oil price exchange rate fluctuations; company capacity recovery pace is lower than expected; accounts receivable risk; regional competition risk; ARJ21 economic risk.