Event: the company released production and operation data for August 2023. In August, the company completed passenger turnover (RPK) of 4.49 billion person-kilometers, an increase of 67.0% over the same period last year and 24.4% more than in August 2019. Among them, the passenger turnover of domestic routes increased by 41.3% in August compared with the same period last year, and increased by 60.2% compared with August 2019; the passenger turnover of international and regional routes increased by more than seven times year-on-year, and returned to 57% and 50% respectively in the same period in 2019. The company's available seat mileage (ASK) in August was 4.86 billion person-kilometers, an increase of 39.9% over the same period last year and 26.2% higher than in August 2019. Among them, ASK on domestic routes increased by 18.1% in August compared with the same period in 2019, and increased by 62.8% compared with the same period in 2019. ASK on both international and regional routes increased significantly compared with the same period in 2019, and returned to 59% and 45% respectively in the same period in 2019. The overall occupancy rate of Spring and Autumn Airlines was 92.5% in August, which improved 0.2pps compared with July, increased 15.0pps year on year, and decreased 1.4pps compared with August 2019. Among them, domestic occupancy rate decreased slightly compared with July (- 0.4pps), while international and regional occupancy rates increased 3.8pps and 1.0pp respectively. Compared with August 2019, the domestic and international occupancy rates are-1.5pps and-3.1pps respectively, while the regional occupancy rate is close to that of 10pps over the same period in 2019. As of August 2023, the company's cumulative total ASK and RPK in the first 8 months recovered to 111% and 108%, respectively, in the same period in 2019.

During the summer transportation period, the growth of domestic passenger turnover far exceeded the industry average in the same period in 2019, and the recovery of international transport capacity was in line with expectations. The total passenger throughput of Spring and Autumn Airlines from July to August was 25% higher than that of 2019, while the overall passenger turnover of the industry returned to 99% of that of 2019. In terms of routes, the passenger throughput of Spring and Autumn Airlines domestic routes increased by 60% compared with the summer transportation in 2019, far exceeding the overall growth rate of 20% of the industry; the overall passenger turnover of Spring and Autumn Airlines returned to 57% of the summer transportation in 2019, faster than the overall recovery of the industry 7pps. The company's overall capacity in July-August returned to 125% of that in the same period in 2019, of which domestic capacity returned to 160% of the 2019 summer capacity, while international and regional capacity overall returned to 58% of the 2019 summer capacity.

The utilization rate of the company's aircraft is expected to return roughly to pre-epidemic levels in the second half of 2024. By the end of 2022, the company had 1707 active pilots, an increase of only 12 per cent from the end of 2019, much lower than the 25 per cent increase in fleet size over the same period. In the first half of 2023, the company's aircraft utilization rate was 8.11 hours, an increase of 46.1% over the same period last year, but still below the average daily utilization level of 11.19 hours in the same period in 2019. In the first half of 2023, the cost of pilot introduction capitalized by the company exceeded 82 million, which is almost the same as the increase for the whole of 2022, which partly reflects that the company is accelerating the introduction of pilots. It is expected that the company's aircraft utilization will further improve with the recovery of international capacity and the expansion of the pilot team from the second half of 2023 to 2024.

Profit forecast and investment advice. It is estimated that from 2023 to 2025, the EPS will be 2.06,3.25,4.50 yuan respectively, and the current stock price corresponding to the dynamic EPS E will be 27 times, 17 times and 12 times respectively. The company's international capacity has been restored in an orderly manner, the problem of pilot gap has been gradually improved, and the effectiveness of fine management and control has gradually become obvious. We are optimistic about the company's performance flexibility in the next three years and maintain its "buy" rating.

Risk hints: risks such as macroeconomic impact on the recovery of aviation travel demand, crude oil prices and exchange rate fluctuations.