China Eastern Airlines Logistics: China's leading aviation logistics service provider
China Eastern Airlines Logistics left the Air Cargo Division of China Eastern Airlines. As of 23Q3, the company has 16 of its own freighters, and China Eastern Airlines has an exclusive management plan of nearly 800 passenger aircraft (up to 23H1); the route network has reached 1,088 destinations in 184 countries and regions around the world. In terms of financial performance, capacity supply in the air cargo market has recovered rapidly since '23, demand has weakened, freight rates have declined sharply, and the company's overall revenue and profit were under pressure in the first three quarters. Among them, ground service profits improved marginally.
Air freight: Supply-side pressure still exists. The demand side focuses on marginal improvements and structural opportunities on the supply side. Currently, domestic abdominal capacity has exceeded the same period in 19 years, international ventral capacity has recovered by about 50%, and international freighter capacity has declined year-on-year, achieving a significant increase from before the epidemic. We expect China's air cargo capacity to be 1,163, 1429, 16.65 million tons/year, +45%, +23%, and +16% year over year. Among them, Europe, America and other routes will have a capacity of 477, 554, and 6.22 million tons, +27%, +16%, and +12% over the same period last year.
On the demand side, global economy and trade have declined, air freight development is under pressure, and freight rates have dropped significantly. However, on the other hand, the year-on-year decline in the air cargo market represented by the Asia-Pacific region is gradually narrowing, and the trend of marginal improvement is obvious.
From a structural point of view, the strong e-commerce development momentum on the overseas retail side is expected to create a new round of development opportunities for China's cross-border export e-commerce. Cross-border e-commerce logistics is mainly based on the air cargo model, which is expected to increase the share of air freight lines and overseas warehouse models. We expect the market size of dedicated lines and overseas warehouses to be 964 and 361.5 billion yuan in 25, with compound growth rates of 24% and 22% respectively in 22-25.
Route resources and location advantages are obvious. Cross-border e-commerce logistics has built the second largest growth pole of air express: the company has built an efficient international air network structure with “Europe and America as the main focus, and Asia Pacific as a supplement”. The fall in air freight rates in '23 had a certain impact on the company's business. Based on supply and demand analysis, we believe that there is still a slight downside risk in freight rates next year, but the supply and demand pattern in Europe and the US may be superior to the overall supply and demand patterns, and freight rates are expected to stop falling.
Comprehensive logistics services: With excellent capacity and route resources, the company digs deep into supply chain upgrading needs and creates a business matrix including cross-border e-commerce solutions. At present, the company has formed a stable customer base with direct customers from the industry, covering segments such as fresh food supermarkets, cross-border e-commerce, and high technology. The proportion of direct customers in the first half of 2022 was about 1/3. We believe that as a strategic partner of the leading cross-border e-commerce platform, the integrated logistics business is expected to benefit from the dividends of emerging cross-border e-commerce going overseas.
Comprehensive ground services: As of 23H1, the company has 17 self-operated terminals and 1.5 million square meters of storage area and operation site nationwide. It has obvious resource advantages in Shanghai, which is the third largest air cargo hub in the world. Over the past 23 years, cargo and mail processing capacity at the terminal has steadily recovered, and profitability has reached a record high.
The company has further increased production capacity. We believe that in the context of the booming development of air cargo in the Yangtze River Delta, the company's integrated ground business is expected to grow rapidly.
First coverage, giving a “buy” rating. We expect the company's net profit to be 25, 3, and 3.6 billion yuan in 23-25, or -33%/+22%/+20% year-on-year; the corresponding PE is 10x, 8x, and 7x, respectively. Referring to comparable company valuations, the company was given 11 times PE in 24 years, and the corresponding target price was 20.79 yuan/share.
Risk warning: Macroeconomic downturn, air and sea freight rates continue to fall, cross-border e-commerce industry growth falls short of expectations, overseas business compliance risks.