Introduction to this report:
2023Q3 initially showed profit elasticity, and it is expected that the profit center will rise in the future. The construction of the Beijing Daxing hub will gradually optimize the air network structure and expand the space for long-term development. Profit elasticity during the 2024 Spring Festival travel season is expected to catalyze optimistic expectations and maintain increased holdings.
Summary:
Maintain an increase in holdings. 2023Q3 initially showed profit elasticity. Considering that the increase in oil prices exceeded previous assumptions, the net profit forecast for 2023 was lowered to 2 (26) billion yuan (originally 2.6) billion yuan. The 2024 forecast was maintained at RMB 9.8 billion, and the 2025 forecast was increased by RMB 10.7 billion. The profit center can be expected to rise in the future. The construction of the Beijing Daxing hub will gradually optimize the air network structure and expand long-term development space. Expectations have fallen back to a low level due to market concerns about demand. We expect the 2024 Spring Festival travel season to exceed expectations, which is expected to catalyze market optimism. Maintain the target price of HK$5.97 per share and maintain an increase in holdings rating.
The performance of 2023Q3 increased significantly compared to before the pandemic, showing initial profit elasticity. The company returned net profit of 4.2 billion yuan in a single quarter in 23Q3. Since reversal of losses in a single quarter for the first time in 2021, the company's net profit increased by 76% compared to 2019Q3, and net interest rate increased by 3 percentage points. 1) Revenue: Compared with 2019Q3, RPK recovered 93%, passenger occupancy rate was 3% lower, estimated double-digit passenger revenue growth, and revenue increased 9%; 2) Costs: Compared with 2019Q3, ASK recovered 97%, the average price of aviation fuel increased by more than 30%, and operating costs increased 12%. 3) Exchange: RMB depreciated nearly 3% against the US dollar in 2019Q3, while the exchange rate was stable during 2023Q3, and exchange losses were reduced by more than 1.6 billion yuan after tax.
The profit center is expected to rise more than expected in 2024. It is expected that the increase in international classes in 2024 will drive the recovery of domestic supply and demand, the effects of marketization of ticket prices will be fully demonstrated, and the company's profit center is expected to rise above expectations. 1) ASK: Assuming that fleet turnover has basically returned to before the epidemic, and that the international recovery exceeds 80%.
2) Guest occupancy rate: Assuming that the domestic occupancy rate has basically returned to before the epidemic, the international occupancy rate is slightly lower. 3) Customer reception:
Assuming that the effects of marketization in ticket prices are fully reflected, domestic passenger revenue continues to rise, and international passenger withdrawals fall; 4) Cost: Assuming oil prices are stable, the cost of withholding oil per unit falls due to a random increase in turnover.
The Beijing Daxing base will gradually optimize the air network structure and expand the space for long-term development. The company relocated to Beijing Daxing Airport as the largest base airline and is actively building a Guangzhou-Beijing dual hub network.
Revenue from Beijing's stock of flights has declined, and the incremental benefits from the optimization of third- and fourth-tier flights to Daxing are impressive. It is expected that the profit center of the domestic passenger transport business will rise and continue to exceed market expectations. At the same time, Beijing has an excellent location, and the construction of an international hub is expected to enhance the long-term profitability of the company's international passenger transport business.
Risk warning. Economic fluctuations, oil price exchange risk, increased dilution, safety incidents, etc.