Description of the event
Spring Airlines disclosed its 2023 three-quarter report. In the third quarter of 2023, Spring Airlines achieved operating revenue of 6.07 billion yuan, an increase of 37.5% over 2019Q3, and realized total profit of 1.97 billion yuan, an increase of 74% over 2019Q3; realized net profit of 1.84 billion yuan, an increase of 113% over 2019Q3, and doubled its profit for the single quarter compared to before the pandemic.
Incident comments
Demand was high during the peak summer season, and Q3 revenue was released flexibly. 2023Q3, the industry ushered in a peak summer season, with the flexible release of demand for private travel, and international routes ushered in accelerated recovery, promoting continuous improvement in the company's capacity recovery. 2023Q3 company ASK increased 18.9% over 2019Q3, 16.2% month-on-month, RPK increased 18.7% year-on-month, increased 20.0% from 23Q2, and passenger occupancy rate recovered to 91.8%. Compared with 2019Q3, there was only a slight decline of 0.1 pct, and an increase of 2.9 pct over 23Q2; the upward trend in the industry drove tickets The price level rose, and 2023Q3's unit revenue increased 15.8% compared to 2019. In the end, the 2023Q3 company recorded operating income of 6.07 billion yuan, an increase of 37.5% over 2019Q2, and an increase of 26.9% over the previous month. The operating situation improved dramatically, releasing revenue elasticity.
Cost control is leading, and tax shields contribute to profit growth. The company's management capabilities lead the industry, helping to mitigate profit volatility:
On the one hand, the company's unit's non-fuel cost control was effective. Q3 benefited from changes in the route structure and the increase in the number of seats in the A321 fleet effectively diluted the cost. It was estimated that in 2023Q3, the company's unit non-fuel cost was only 0.1933 yuan/seat kilometer, down 2.8% from 23Q2, down 0.4% from 2019Q3, and operating capacity continued to recover. The price of aviation fuel remained high in 23Q3, up 34.4% from 19Q3. It is estimated that the cost of aviation fuel was 1.56 billion yuan, an increase of 18.1% per unit of aviation fuel over the same period last year, which is lower than the increase in fuel prices. On the other hand, the Q3 corporate tax shield effect was obvious. The income tax rate was only 6.6%, far lower than the normal tax rate of about 25%, contributing to profit growth. In the end, 2023Q3 benefited from high demand and leading management capabilities. The company's revenue improved quarterly, non-oil was effectively diluted, and revenue elasticity was supported by tax shields. In the end, 2023Q3 recorded net profit of 1.84 billion yuan, an increase of 112.7% over 2019Q3. Performance flexibility was greatly released, leading comparable companies in the industry.
Investment advice: Take the lead in releasing profit flexibility in short-term purchases, overtake the supply curve in the medium term, and buy management and growth α in the long term.
1) Short-term purchasing profit flexibility was first released: Spring Airlines's demand structure perfectly matches the pace of demand climbing, leading the market in revenue management and internal operating capabilities. The international market has significant competitiveness in overtaking corners, and the leading profitable industry for the Q3 summer travel season was the first to be released. 2) Mid-term supply curve purchases: As demand recovered and continued to grow in 24 years, industry supply was constrained by labor, capital expenditure, and manufacturing, making growth difficult to guarantee, and the mismatch between supply and demand unleashed profit elasticity; while the company's aircraft introduction rate was leading the industry, fleet introduction maintained an annualized growth rate of about 7% in 19-24, leading the industry by 4pct in capacity growth, which endorsed the company's flexible performance. 3) Long-term purchase management governance and growth α: According to market perception, spring and autumn are essentially consumer stocks with stable profitability. In the long run, the efficiency of the company's low-cost model is prioritized, and stand-alone profits are expected to remain stable; at the same time, consumption upgrades bring about the company's growth, and the company's steady capacity growth rate is expected to remain 15% annualized, which will help the company grow in the long term. We expect the company to take the lead in recovering its profitability. The net profit attributable for 2023-2025 is 23, 43, and 5.2 billion yuan, respectively. Of these, the 24-25 performance corresponding to the PE valuation level of the current stock price is 12 and 10 times the current stock price, respectively, maintaining a “buy” rating.
Risk warning
1. The risk of slow progress in the resumption of international routes;
2. Capital expenditure risk;
3. Risk of large fluctuations in oil prices and exchange rates.