The company released its 2023 performance forecast: In 2023, the company's net profit is expected to be 1.25 billion yuan to 1.45 billion yuan, up 84.0% - 113.5% year on year, lower than market expectations.
It is estimated that there are three main reasons why the company's profit falls short of expectations: 1) credit impairment accrual; 2) increase in employee costs: increase in the five insurance and one fund base; and 3) increase in technical support and maintenance costs.
In 2023, the total number of domestic and foreign commercial airline flight bookings handled by the company was 620 million, an increase of 149% over the previous year, returning to 90% in 2019. Among them, China's commercial airline flight bookings (international segment) were 41 million, an increase of 940% over the previous year, and recovered to 41% in 2019. China's commercial airline flight bookings (domestic segment) were 569 million, an increase of 135% year over year, returning to 101% in 2019. China's commercial airline flight bookings (international and domestic flights) were 609 million, an increase of 148% year over year, returning to 92% in 2019. Foreign commercial airline flight bookings were 111 million, an increase of 241% year over year, returning to 42% in 2019.
The fundamentals of aviation tourism have been improving for a long time. The revenue drivers of the company's aviation information technology service business, settlement and clearing business, and data network service business are flight reservations processed by the electronic travel distribution (ETD) system. According to data from the Civil Aviation Administration, in 2019, the number of flights per capita in China was 0.47, lower than the world average of 0.87, 2.83 in the US, 2.4 in Canada, and 3.0 in Australia. According to the “2020 China Air Accessibility Report for Cities Below the Sub-Provincial Level”, as of 2019, there are still 1 billion people in China who have not flown. According to the “Notice of the Civil Aviation Administration on Issuing an Action Plan for Building a Strong Civil Aviation Country in the New Era”, the number of flights per capita in China will rise to 1 in 2035. As a result, there is huge room for growth in China's flight bookings.
Investment in airport informatization is accelerating. The revenue driver for the company's system integration business is investment in new and existing airport informatization. The company has a competitive advantage in systems such as reservation, departure, luggage, security, command and dispatch. According to data from the Civil Aviation Administration, in 2022, China had 254 transport airports, and the demand for informatization, digitalization and intelligence at existing airports continues to grow. Furthermore, according to the Civil Aviation Administration's plan, China will build about 450 transport airports by 2035, and the addition of additional airports will also spur an increase in system integration services. In 2023, the Civil Aviation Administration issued the “Guiding Opinions on Accelerating the Construction and Development of Smart Civil Aviation”, and infrastructure investment in the civil aviation industry in the past two years has maintained a scale of more than 100 billion yuan per year, all of which are positive signs of the acceleration of airport informatization transformation.
Downgraded from a “buy” rating to an “gain” rating. The company's net profit forecast for 2023 and 2024 was lowered, and the net profit forecast value for 2025 was added to 1,263 billion yuan/1,881 billion yuan/2,245 billion yuan respectively (the original forecast for 2023 and 2024 was 1,998 million yuan/2,981 billion yuan, respectively). The company's 2023/2024/2025 PE is 18X/12X/10X, respectively.
Three comparable companies, Guanglianda, Zhongwang Software, and Youyou Software, were selected. Comparable companies had an average PE value of 32X in 2024. Considering that China Aviation Communications is a Hong Kong stock company, the company was given a 55% discount on Hong Kong stocks. The target market value is HK$29.7 billion, or HK$10.22 per share. There is room for an increase of 18% compared to the current level, and the rating was downgraded from a “buy” rating to a “gain” rating.
Risk warning: 1) Infrastructure investment in the civil aviation industry falls short of expectations; 2) The Chinese government liberalizes entry policies for foreign GDS providers.