Economic recovery, aviation industry is expected to usher in a cyclical recovery
The aviation cycle is highly related to the inventory cycle. The inventory cycle at the end of 2023 is expected to rebound: first, nearly 1.5 years of destocking, which is expected to end; second, the forward-looking indicator PPI,7 growth has continued to pick up since the month; third, inventory growth has dropped to near zero, an all-time low and rebounded slightly in August. Once the inventory cycle picks up, it is expected to last about two years, aviation revenue growth and gross profit margin are expected to pick up, that is, ushered in a cyclical recovery. During the upward phase of the inventory cycle, airline stocks tend to rise.
China Southern Airlines 'stock price is more elastic
In the two bull markets of 2006-2007 and 2014-2015, the share prices of A shares of the three major airlines rose by 9-13 times and 4-6 times respectively. Among them, China Southern Airlines rose 11.8 times and 6.2 times respectively. Among major listed airlines, Southern Airlines 'share price elasticity from 2010 to 2023 is higher than most of its peers.
Therefore, in the upward economic cycle, China Southern Airlines 'share price elasticity is expected to be larger.
Southern Airlines has a low market value.
Since 2020, most cycle plate indexes of A shares have risen sharply, but the epidemic situation has led to a significant decline in aviation index; and the commonly used valuation methods such as PS, PE and PB are ineffective for the aviation industry. Fortunately, the potential demand for aviation and the number of aircraft continue to grow, so "market value/number of aircraft" can be used for valuation.
Although there has been large-amount equity financing since 2020, the A stock market value of China Southern Airlines at the end of September 2023 reached 126% of that of 2019, but the market value of a single aircraft was only 123 million yuan/aircraft, far lower than that of most peers, which may be related to the relatively high number of aircraft of China Southern Airlines. In the future, with the dissipation of the epidemic situation and economic recovery, the market value of China Southern Airlines is expected to be repaired relative to its peers.
Adjust profit forecast
Considering that the passenger traffic volume is still recovering after the epidemic, the recovery of international lines is slow and the inventory cycle is downward dragging down the freight revenue, the forecast net profit of parent company in 2023 will be lowered to 2.37 billion yuan.(The original forecast is RMB 4.06 billion yuan); considering that aviation is expected to usher in a cyclical recovery from 2024 to 2025, the forecast net profit of parent company in 2024 will be increased to RMB 14.13 billion yuan (the original forecast is RMB 10.56 billion yuan), and the forecast net profit of parent company in 2025 will be introduced to RMB 23.33 billion yuan.
Considering the good stock performance of aviation stocks in the upward phase of inventory cycle in history, maintain the "buy" rating.
Risk hints: the epidemic situation is repeated, the economy remains in the doldrums, the cost of fuel oil is higher than expected, and the speed of aircraft introduction is accelerated.