Introduction to this report:
The slow resumption of international flights in 2023 put pressure on domestic supply and demand. Aviation demand will remain resilient in 2024, and international flight increases will improve supply and demand. The company rationally plans to slow down capacity, and the airline network is optimized, and the profit center can be expected to rise.
Key points of investment:
Maintain the increase in holdings. Demand for aviation recovered rapidly in 2010, and domestic supply and demand pressure affected profit recovery.
Demand resilience is expected to remain good in 2024, international increases will improve supply and demand, and the profit center can be expected to rise. Considering the decline in volume and price in 23Q4, the net profit forecast for 2023 was lowered to -75 (previously -3.5) billion yuan, maintaining 95/10.5 billion yuan in 2024/25. Maintain the target price of 6.97 yuan.
International recovery was slow in 2023, putting pressure on domestic supply and demand. Domestic demand for aviation recovered rapidly in 2023, and surplus international capacity returned to domestic oversupply. 1) In 2023, ASK recovered 91% from 2019, with 116% for domestic routes and 44% for international routes. 2) In 2023, the company's RPK recovered 82% compared to 2019, with 105% for domestic routes and 39% for international routes. 3) The occupancy rate in 2023 was 74%, down from 83% in 2019. 4) Customer sales are expected to be higher in 2023 than in 2019.
With improved supply and demand and optimized aviation networks in 2024, the profit center can be expected to rise. The company's performance report estimates net profit to be -6.8 billion yuan to -8.3 billion yuan in 2023. Among them, the net profit for the 23Q3 high oil price order season exceeded 3.6 billion yuan, a record high; 23Q4 had significant losses due to seasonal changes/weather/off-season, etc., and market expectations were quite adequate. It is expected that aviation demand will remain resilient in 2024. International flight increases will drive the recovery of supply and demand, and the company's focus on encrypting the Express Business Line can be expected to rise.
Airspace bottlenecks will continue for a long time, and fleet planning has rationally slowed down. Based on the continuing bottlenecks in China's civil aviation sector for a long time, airlines generally planned to slow down the 14-5 fleet in 2019, and adjusted in mid-2023 to further reduce the 14-year compound growth plan. The company's fleet size at the end of 2023 grew at a compound annual rate of 2% compared to the end of 2019. The company signed a purchase agreement with COMAC for 100 C919 aircraft in September 2023, which is an anticipated supplement to ongoing orders and does not change China's airspace bottlenecks and fleet deceleration plans. At the same time, the resumption of the introduction of the 737MAX is also within the planned expectations. We believe that it will not affect the airline's capacity planning, and the airline is expected to continue to rationally maintain its fleet growth at a low rate in the future.
Risk warning. Economic fluctuations, oil price exchange rates, industry policies, growth and dilution, safety incidents, etc.