Leading regional airline, increasing overall strength
Huaxia Airlines is a domestic private airline that specializes in regional passenger and cargo transportation. It is the leader and main practitioner of China's regional aviation business model. The company's equity concentration is high. Hu Xiaojun and his spouse Xu Wei are the actual controllers of the company. Huaxia Airlines focuses on the regional airline market. In terms of passenger turnover, etc., we think it is far ahead of most regional airlines. In 2013-2019, the company continuously optimized its business structure and completed listing on the Shenzhen Stock Exchange in March 2018. Operating income, shareholders' equity, number of aircraft, etc. all showed an upward trend, and its overall strength continued to improve; in 2021-2022, due to the epidemic, the company's operating income and net profit declined.
The medium- to long-term development prospects are broad
The regional blue ocean market has broad scope for the future. The accessibility of the air network has improved, and regional aviation is developing rapidly. With the rapid economic growth of the central and western regions and the continuous implementation of favorable policies, there are broad prospects for regional aviation development in the medium to long term. Huaxia Airlines has strong growth, and the prospects for regional airline business are broad. As the regional air network continues to expand and the number of navigable cities continues to increase, the company's market share is expected to increase, and there is broad scope for regional business development in the medium to long term. With economic recovery and increased capacity, the company's business revenue and gross profit are expected to pick up.
Out of trouble, profits are expected to pick up
On the one hand, strengthening risk management and control helps the company get out of the “safety accident” dilemma, and profits are expected to pick up.
The rectification measures have been implemented accordingly, the company's operating capacity continues to recover and improve, and profitability is expected to increase.
On the other hand, increased operating capacity has helped the company get out of the “high dependency on government subsidies” dilemma, and profits are expected to pick up. The company cleverly responds to the risk of falling government subsidies by flexibly scheduling the air network structure, increasing the share of transit business, and economies of scale. The company's operating capacity continues to improve, and profits are expected to pick up.
Profit forecasts and target prices
Profit for 2024-2025 is expected to be corrected and significant growth will be achieved. As the impact of the pandemic subsides, the economy recovers, and the development of regional airlines, China Airlines is expected to drive profit growth with its high growth. We forecast net profit for 2023-2025 to be -7.0 million, 4.9, and 980 million yuan, respectively, and EPS of -0.55, 0.38, and 0.77 yuan/share, respectively. Using the PE valuation method of comparable companies, 24x2024EPE was given, with a target price of 9.12 yuan. Coverage for the first time, it was given an “increase in holdings” rating.
Risk warning: declining global economic growth rate, aviation safety risk, aviation policy change risk, repeated epidemic outbreaks, rising fuel costs exceeding expectations, risk of RMB depreciation, risk of interest rate changes, risk of stock price changes, and the measurement results are subjective.