CITIC Haizhi: A leading enterprise in China's general aviation market. 1) The company's civilian helicopter fleet is the largest in Asia. The actual controller of the company is CITIC Group. As of June 2023, the company has 89 helicopters and 3 drones, making it the largest civilian helicopter fleet in Asia. 2) Offshore oil services are currently the main business component, and CNOOC is the company's largest customer. In 2022, CNOOC accounted for 67.8% of revenue, and it also had the largest share in providing related services to CNOOC (the company's related revenue is about 2.5 times that of China Southern Airlines General Aviation). 3) Financial data: Revenue is rising steadily, profits are relatively stable, and the balance ratio is low. The company's revenue CAGR from 2013 to 2022 was about 4.7%, and the average profit was about 200 million (profits were lower in individual years due to low oil prices and sluggish offshore business). In 2013-22, the average stand-alone revenue was 20.81 million yuan, stand-alone net profit was 2.6 million yuan, single-hour revenue was 41,700 yuan, and hourly profit was 0.52 million yuan. Balance ratio: It has declined year by year for the past 6 years, from 45.5% at the end of 2017 to 16.3% in 23Q3. Cost side: In 2022, labor costs accounted for 24%, aviation materials and fuel consumption accounted for 19%, and depreciation and cost sharing accounted for 25%, which are the three core costs.

China's low-altitude economy is facing important development opportunities, and we expect to enter the fast track of industrial development. 1) Implications of the US general aviation market: trillion-level industries and low-altitude consumption are the main forces. a) The US general aviation industry has made a trillion dollar economic contribution. In 2022, the US had about 213,000 general aircraft, accounting for about 48% of the world. The general aviation industry contributed about 247 billion US dollars (over trillion yuan) to the US in 2019, providing about 1.2 million jobs. b) The aviation consumer market is the main force. The main application uses of American general aviation in 2018: in terms of the number of aircraft, 68% for personal leisure, 13% for business, 8% for teaching and training, and 3% for air taxi (Air-Taxi). These four categories accounted for 91%. Judging from the number of flight hours, these four items accounted for 80%. 2) We expect China's low-altitude economy industry to enter the fast track of development. a) Set the tone for strategic emerging industries, and the low-altitude economy welcomes important development opportunities. Intensive policies were announced in December '23, from the Central Economic Work Conference setting strategic emerging industries, to the National Air Traffic Control Commission's basic classification of airspace adding unregulated areas, to the implementation of support policies for local governments such as Shenzhen, which meant that from top-level design to basic escort to implementation in practice, the development of the low-altitude economy ushered in an important period of opportunity. b) The importance of the low-altitude economy and the point of releasing its potential. First, the low-altitude economy has a strong driving effect on the industrial chain. We can divide the low-altitude economy into three links: manufacturing, operation and comprehensive security, with a long industrial chain, high technological content, and employment absorption, which conforms to the national innovation-driven strategy and leads the general direction of industrial transformation and upgrading in various regions; second, the general aviation transportation market is an important part of a strong civil aviation country and helps improve the air traffic network; 3. Consolidating and upgrading traditional fields and boosting the efficiency of public service; 4. It spawns the upgrading of aviation consumption quality and creates an expansion of consumption scenarios. Including air travel, low-altitude sports, etc.

How to understand CITIC Haizhi's investment opportunities? 1) The traditional business is steady, moderate and positive, and consolidating the basic profit market. In the future, CNOOC is expected to continue to increase domestic exploration and development efforts, and the company's offshore oil flight business is steady, moderate and improving.

2) The second growth curve is poised to begin. a) In terms of low-altitude flight: The company has launched sightseeing and short-haul transportation services. It already has ferry routes such as Shenzhen intercity sightseeing, Shenzhen-Zhuhai, Zhoushan-Dongji Island, and Shenzhen-Jinsha Bay. b) The company has already contacted and established cooperative relationships with many eVTOL companies, and the company is also actively promoting drone business applications. 3) The construction of general airports provides development opportunities for the company. According to the plan, the number of general aviation airports in China will reach 500 in 2025, and 399 at the end of 2022, an increase of 25%. 4) In terms of the stage of industrial development: We refer to the development process of the new energy and new energy vehicle industries. Top-level design, industrial support, and financial subsidies are important factors in catalyzing the development of the industry. Currently, the low-altitude economy is facing a similar growth trajectory. From an investment perspective, in the early stages of the explosion of new industries, the market paid more attention to upstream manufacturing and downstream guarantees. The mid-term market would focus on the application layer, but the spread of application scenarios is actually the key to the prosperity of the entire chain. As an application-level enterprise, CITIC Haizhi already has strong operational advantages in the traditional service sector, and has the ability to operate in emerging consumer markets. As airspace reform deepens, simplification and decentralization activate enterprise operating efficiency, and scale effects drive cost reduction, more cost-effective services activate the low-altitude consumer market, and are expected to achieve a profit contribution to the second growth curve. 5) Profit forecast: Without considering the rapid growth of the company's second growth curve, we expect the company to achieve net profit of 2.55, 2.83, and 323 million yuan respectively in 2023-25, corresponding to EPS of 0.33, 0.36 and 0.42 yuan in 23-25, PE of 25, 22 and 20 times, respectively, and current PB of 1.2 times. For the first time, we gave a “Recommended” rating.

Risk warning: flight safety risks, high concentration of major customers, and aviation fuel fluctuations.