Company profile
Spring Airlines is a low-cost airline whose main business is to operate civil aviation transport aircraft and provide passenger transportation services. At the end of 2023, the company operated 121 Airbus A320 series airliners, with a market share of 3.89% in 2023. The company's revenue for the first three quarters of 2023 was 14.10 billion yuan, net profit attributable to mother was 2.68 billion yuan, and the net profit center for the full year was 2.25 billion yuan. The majority shareholder of the company is Chunqiu International Travel Service, with a shareholding ratio of 51.50%. The actual controllers are Mr. Wang Zhenghua and Mr. Wang Yu.
Extreme cost control brings high profitability
On the one hand, the company attracts travelers by providing cheaper air tickets compared to full-service airlines, and on the other hand, it uses the “two orders”, “two highs”, and “two lows” operating models to extremely control and suppress low costs, making low ticket prices an advantage in profitability. The company's net profit margin in 2019 was 12.41%, far higher than that of traditional full-service airlines. The company's overall losses in 2020-2022 were manageable, and operations resumed rapidly in 2023, taking the lead in recovering profits. Profit in the first three quarters reached a record high, and the profit margin advantage was further expanded.
Civil aviation supply and demand are expected to continue to improve, which is beneficial to the company's profit growth
We believe that the growth rate of China's civil aviation supply will be limited in 2024. Demand, especially the restoration of the international market, is expected to further improve the market structure, and the fundamentals of the industry will continue to improve. Looking at the longer cycle, there are long-term constraints on civil aviation supply growth. The supply growth rate is expected to remain low, and rising demand is expected to drive the continuous improvement of the civil aviation supply and demand relationship and raise the industry's profit level. As the industry recovers further, the efficiency of the company's fleet utilization is expected to rise further, diluting related costs. Furthermore, due to the company's historical investment of more than 30% of capacity on international routes, the overall recovery in the Japanese, South Korea and Thailand market in 2023 was weaker than the industry average. Fleet expansion combined with the return of capacity led to 60% higher domestic capacity investment than in the same period in 2019. Market cultivation will take time, and market cultivation will take time, which is beneficial to the optimization of the company's domestic stock business pattern and continuous price improvement.
Profit forecasts and investment advice
We expect Spring Airlines revenue for 2023-2025 to be 17.57 billion yuan, 20.87 billion yuan, and 23.21 billion yuan, respectively, up 109.9%, 18.8%, and 11.2% year-on-year respectively. Net profit to mother will be 2.27 billion, 3.08 billion, and 3.70 billion yuan, respectively, reversing losses, 35.9%, and 20.1% year-on-year respectively. Historically, the company's dynamic PE valuation level has been in the range of slightly more than 20 times. As of the close of trading on January 31, 2024, Spring Airlines had a total market value of 512 billion dollars, and the PE valuation corresponding to the expected performance in 2024 was 16.6X. It is still significantly below the historical average, and there is still room for upward correction. Referring to the comparative advantage of Southwest Airlines in maintaining profitability even after continuous growth in scale, we continue to be optimistic about Spring Airlines' future development potential and maintain the company's “buy” rating.
Risk warning:
Economic recovery falls short of expectations, sharp fluctuations in oil prices and exchange rates, and safety incidents