occurrences
On January 4, 2024, the 4th C919 received by China Eastern Airlines went to Yangzhou Taizhou International Airport for flight training. By the end of 2023, China Eastern's C919 fleet had carried nearly 82,000 passengers.
On December 23, 2023, Air China announced that it plans to raise funds to introduce 17 aircraft, including 6 C919 and 11 ARJ21.
reviews
1. Two types of businesses and two major markets, external development opportunities and long-term internal layout form dual growth momentum. The company is in the aviation materials industry chain. Judging from the business classification, it covers two types of business: aviation materials distribution and self-developed aviation materials. Judging from the customer type, it serves the two major markets: the in-service aircraft operation and maintenance market and the new aircraft manufacturing market. The aviation materials distribution business for the aviation operation and maintenance market is the company's basic market, growing rapidly as the civil aviation boom recovers; the aviation materials distribution business for the new aircraft manufacturing market benefits from the accelerated development opportunities of C919 production and delivery; in terms of self-developed aviation materials business, the company began localizing aviation materials earlier, and the product categories continued to be rich, the production base was gradually formed, and the market space was broad.
2. The basic market for aviation materials distribution in the aviation operation and maintenance market is stable. The aviation materials distribution business to airlines and aircraft maintenance companies (MRO) is directly related to the level of the civil aviation boom, and is the basic basis for the company's revenue and profit. In 2023, the domestic civil aviation boom picked up. The total annual civil aviation traffic turnover was 118.83 billion tonkilometers, up 98% year on year, equivalent to 92% in 2019; among them, domestic route transportation turnover was 86.73 billion tonkilometers, up 124% year on year, equivalent to 105% in 2019, and international route transportation turnover was 32.1 billion tonkm, up 52% year on year, equivalent to 69% in 2019. Benefiting from the recovery in the civil aviation boom, the company achieved revenue of 604 million yuan, an increase of 49% over the previous year, and achieved net profit of 78 million yuan to mother, an increase of 30% over the previous year. 2023Q1-Q3 Looking ahead to 2024, the domestic civil aviation industry is expected to maintain a relatively rapid growth rate with the resumption of international routes, and the company's aviation materials distribution business to airlines and MRO is expected to maintain a relatively rapid growth rate.
3. Accelerating C919 production and delivery opens up an incremental market on the manufacturing side. Aviation materials distribution is a key part of aircraft manufacturing. Boeing and Airbus have major aviation parts distributors “Boeing Distribution Services Inc.” (Boeing Distribution Services Inc.) and “SATAIR” (SATAIR), respectively.
73% of the revenue of Visco, a leading international aviation materials distributor, came from sales to OEMs and contractors from the aircraft manufacturer side; 45% of the 2019 revenue of the Singaporean aviation materials distribution company AM Aerospace came from sales to OEMs and contractors from the aircraft manufacturer side. Since the large domestic aircraft C919 is in its infancy, the company currently accounts for a relatively low share of sales revenue for aircraft manufacturers and OEMs. According to the company's prospectus, the company's total sales revenue to AVIC and COMAC in 2020 accounted for 16%. In January 2023, Zhang Yujin, deputy general manager of COMAC, explained that the annual production capacity of the C919 is expected to reach 150 units within 5 years. With the acceleration of C919 production and delivery, demand for aviation materials on the manufacturing side is expected to increase rapidly, and the company's aviation materials distribution business and self-developed aviation materials business are expected to fully benefit.
4. The self-development business is progressing smoothly, and there is plenty of room for localization of aviation materials. The company continues to enrich the variety of self-developed aviation materials. As of the end of 2023H1, 102 types of self-developed aviation materials have passed various airworthiness certifications from the Civil Aviation Administration of China, and can be used to equally replace imported aircraft materials on domestic Boeing and Airbus multi-model airliners; some products of the wholly-owned subsidiary Runhe New Materials have been included in the COMAC standard materials manual. 2023H1, the company acquired Jiaxing Qingyun, and Jiaxing Qingyun will be mainly responsible for the R&D and production of advanced composite materials for aviation and aerospace. The company's self-research business will form two production bases in Huizhou and Hangzhou. The Huizhou Runhe production base will use aviation special tape, aviation chemicals, etc. as the main products, and the 2023Q3 surunhe plant has been completed; the Hangzhou composite material production and R&D base focuses on high-end pre-impregnation, adhesive film and localized aviation composites. On January 30, 2024, the subsidiary Runbei New Materials was successfully removed from the ground in Yuhang District, Hangzhou.
5. The cash is abundant and the asset situation is excellent. The 2022 profit distribution accounted for 63% of the company's net profit to the mother for the year. As of the end of 2023Q3, the company had monetary capital of 478 million yuan, no short/long-term loans, a current ratio of 11.89, and a balance ratio of only 7.83%. The company's asset position is excellent and the operating risk is low. In 2022, the company distributed a cash dividend of 6.25 yuan for every 10 shares, with a total dividend amount of 50 million yuan, accounting for 68% of the company's distributable profit for the year and 63% of the net profit for that year. The high dividend ratio highlights that the company attaches great importance to shareholder returns.
6. We expect the company's net profit to be 0.95, 1.21, and 169 million yuan respectively in 2023-2025, corresponding to the current share price PE of 20, 16, and 11 times, respectively, to maintain an “increase in holdings” rating.
Risk warning
The recovery of the domestic air transport industry fell short of expectations; procurement prices rose due to exchange rate fluctuations and other factors; the development of the self-developed and self-produced business fell short of expectations; and the development of large domestic aircraft fell short of expectations.