Incident: Spring Airlines announced its 2023 pre-profit performance. Net profit for the full year is estimated to be RMB 21-2.4 billion, and RMB -0.036 billion in 2022; net profit without deduction to mother is RMB 20-2.35 billion, and RMB -3196 billion in 2022.
Results for the full year of 2023 reversed losses and reached a record high. Q4 was mainly affected by the off-season with minor losses.
In 2023Q4, the company's net loss due to mother is estimated to be 2.7 to 577 million yuan, and net loss after deducting non-return to mother is 2.24-5.74 million yuan. Q4 ① For domestic flights, ASK and RPK were +47.7% and +45.8% compared to 2019, with a passenger occupancy rate of 90.4%, compared to -1.2pct in 2019; ② for international flights, ASK and RPK recovery rates were 33.1%, 32.5%, and the passenger occupancy rate was 81.1%, compared to -1.63% in 2019. The Q4 industry ushered in a traditional low season. The growth rate of the company's domestic demand slowed, the recovery rate of international supply and demand declined, and losses were in line with expectations. The company's performance for the whole year was impressive. Among them, Q1 took the lead in reversing losses. The Q3 peak season achieved net profit of 1,839 billion yuan, a record high in single quarter results, and was close to the full year of 2019. Profit elasticity was verified. Overall, private demand has gradually become the biggest driving force in the air travel market. In particular, it can bring reliable performance contributions during the holidays, and the increase in business routes and the recovery of business customers have also brought better performance stability to the company.
In 2023, the company's domestic supply and demand growth rate was clearly ahead of its peers, and the fleet introduction growth rate was 4.31%.
The company's overall ASK and RPK growth rates in 2023 were 8.6% and 6.9%, respectively, compared to 2019; the occupancy rate was 89.4%, compared to -1.4pct in 2019. Among them, compared with 2019, the ① domestic route ASK and RPK growth rates were +46.9% and +43.7% respectively, the passenger occupancy rate was 90.3%, and the gap was 2.0pct. ② The recovery rate for international routes ASK and RPK was 39.9% and 37.3% respectively, the passenger occupancy rate was 82.2%, and the gap was 5.8pct. Furthermore, by the end of 2023, the company had operated 121 A320 series aircraft, a net increase of 5 compared to the end of 2022 (6 A320neo were introduced and 1 A320CEO was withdrawn), a growth rate of 4.31%.
At present, we are focusing on the peak season of the Spring Festival travel season, and we are optimistic that the company's profit center will rise in the medium to long term. The industry ushered in the first complete Spring Festival travel season after the epidemic. The market has entered a channel of rising expectations, and is paying attention to the “travel+family visit” peak season. According to reports from the Information Office of the State Council and Xinhua News Agency, the Civil Aviation Administration said that this year's Spring Festival holiday period has been extended compared to previous years, and “family visit+travel” will become a popular travel model this year. Passenger traffic during the Spring Festival travel season is expected to reach 80 million passengers, an average of 2 million passengers per day, +9.8% compared to the 2019 Spring Festival travel season, and +44.9% over the same period, which is expected to reach a record high. Looking at the medium to long term, there is a tight balance between supply and demand in the industry, and improvements in the competitive pattern are compounded by the transfer of wide-body aircraft to the international market, and flexibility in domestic flight fares continues to be unleashed. I am optimistic that the company's peak season will rise sharply in volume and price, and the overall profit center will rise.
Investment advice: In the long run, the company has excellent refined management capabilities, operational resilience through cycles, and strong risk resistance; moreover, its products are more cost-effective, which will fully benefit from the growing demand for popular air travel. We expect the company's net profit to be 22.5/35.4/4.74 billion yuan in 2023-2025, respectively, corresponding to the current share price PE of 23.2/14.7/11.0 times. Considering the resilience and long-term growth of Spring Airlines's business model, it is expected to enjoy a valuation premium, giving the company 20 times the PE valuation. The target price for 6 months is 72.25 yuan, maintaining a “buy-A” rating.
Risk warning: The macroeconomic decline has led to a decrease in residents' travel consumption and public business travel; a sharp rise in oil prices due to geopolitical risks, etc.; the risk of a sharp depreciation of the RMB; the risk that profit forecasts and related assumptions fall short of expectations.