Event: The company issued a pre-profit announcement for 2023 results. The company expects to achieve net profit of 21-24 billion yuan in 2023, turning a loss into a profit compared to the same period of the previous year (loss of 3.04 billion yuan); net profit after deducting non-return to mother of 20-2.35 billion yuan, turning a loss into a profit over the same period of the previous year (loss of 3.2 billion yuan). Among them, it is estimated that Q4 will have a net loss of 28—580 million yuan, from profit to loss in Q3 (profit of 1.84 billion yuan); net loss after deduction of non-return to mother will be 22-570 million yuan, or profit to loss compared to Q3 (profit of 1.82 billion yuan).
Demand for aviation has recovered, and the company's ASK and passenger occupancy rates have rebounded sharply. In 2023, the company's usable seat kilometers (ASK) increased 56% year-on-year, up 8.6% from 2019. ASK for its domestic routes rose 47% compared to 2019, and ASK for international and regional routes returned to 40% and 43% respectively in 2019. The company's comprehensive occupancy rate in 2023 was 89.39%, a year-on-year increase of 14.74pct, and a decrease of 1.42pct compared with the same period in 2019. The company's fleet size at the end of December 2023 was 121, a net increase of 5 aircraft, up 4.31% from the end of 2022 and 30.11% from the end of 2019.
The positive contribution of oil prices is limited, and exchange rate risks are actively hedged. The average price of Brent crude oil in 2023 was about 82 US dollars/barrel, down 17% year on year; the average factory price of domestic aviation kerosene was about 6,778 yuan/ton, down 9.8% year on year, but it is still at a relatively high level in history. In terms of exchange rate, the exchange rate of RMB against the US dollar fluctuated greatly in 2023. The value depreciated by about 5.2% in the second quarter and appreciated slightly in the fourth quarter (1.4%); however, the company achieved the goal of controlling foreign exchange risk by holding a sufficient amount of US dollar financial assets and signing forward foreign exchange contracts.
The Spring Festival travel season is about to begin, and the civil aviation market is expected to see a sharp rise in volume and price. The Civil Aviation Administration predicts that during the 2024 Spring Festival travel season, civil aviation passenger traffic will reach 80 million, an average of 2 million passengers per day, an increase of 9.8% over the 2019 Spring Festival travel season and a 44.9% increase over the 2023 Spring Festival travel season, which is expected to reach a record high. Flight managers forecast that the average price of economy class tickets (including fuel) for the 2024 Spring Festival travel season is close to 1,000 yuan, up 12% from 2019.
Aviation supply and demand will continue to recover in 2024, and the company's profitability will continue to recover. The Civil Aviation Administration expects domestic passenger traffic to reach 630 million in 2024, an increase of 7.7% over 2019, and scheduled international passenger flights will return to about 80% before the pandemic by the end of 2024. Considering that airline passenger occupancy rates and daily aircraft utilization rates continue to recover in 2024 (the daily aircraft utilization rate is 1.2 hours lower than in 2019, and the regular passenger occupancy rate is 5.3 pcts lower than in 2019), domestic aviation supply is expected to be further released; at the same time, due to the transfer of some capacity from the domestic market to the international market, the average ticket price level is expected to drop slightly year-on-year, further stimulating the release of demand, and airline profitability will continue to be repaired/released.
Investment advice: Aviation demand recovered rapidly in 23 years. With its competitive advantage in the market and good cost control capabilities, the company greatly improved production and operation, led the industry in profit recovery pace, and achieved a record high annual performance.
Looking ahead to 2024, we expect both the supply and demand sides of air passenger transportation to continue to recovery/grow, and the company's profitability will continue to recover. We raised the company's net profit forecast for 23-25 billion yuan to 2.20 billion yuan, 3.24 billion yuan, and 4.42 billion yuan (originally 2.0 billion yuan, 3.09 billion yuan, 4.01 billion yuan), maintaining the company's “increase in wealth” rating.
Risk warning: The macroeconomic downturn affected the decline in aviation demand; the RMB exchange rate fluctuated greatly; crude oil prices rose sharply; the pace of recovery in supply and demand for overseas routes was lower than expected.