On March 27, 2024, China Southern Airlines released its 2023 Annual Report. In 2023, the company achieved operating income of 159.93 billion yuan, an increase of 83.7%; achieved net profit of 4.21 billion yuan, an increase of 28.47 billion yuan; of these, Q4 achieved operating income of 40.44 billion yuan, an increase of 139.3% over the previous year; and realized net profit of 5.53 billion yuan, an increase of 9.57 billion yuan over the previous year.
The market recovered rapidly in 2023, and revenue improved significantly. The civil aviation market has recovered rapidly since 2023, and the market performance was outstanding during the peak season. In 2023, the company ASK grew 105.6% year on year, recovering to 92% in 2019, and its domestic routes recovered to 113% in 2019; RPK increased 141.9% year over year to 87% in 2019, and its domestic routes recovered to 106% in 2019. Demand grew faster than supply, and the passenger occupancy rate increased 11.7 pcts to 78.1% year over year, narrowing the gap to 4.7 pcts compared to 2019. The company's aircraft utilization rate in 2023 was 8.93 hours, an increase of 3.89 hours over the previous year, and recovered to 90% in 2019. The company's revenue increased significantly by 84% year over year, 3.6% higher than in 2019.
Exchange losses have reduced financial expenses, and net interest rates have increased significantly over the same period last year. The company's turnover recovered rapidly. The cost per seat kilometer in 2023 was 0.46 yuan, a year-on-year decrease of 32% and an increase of 17% over 2019. The company's gross margin was 7.7% in 2023, down only 4.4pct from 2019. In terms of cost ratios, the company's expense ratio decreased by 9.6 pct year on year in 2023, and sales, management, R&D, and finance expenses were 4.1%, 2.4%, 0.3%, and 4.0%, respectively. Among them, the financial expenses ratio decreased by 6.6 pcts year on year. The main reason is that the RMB exchange rate depreciated against the US dollar was lower than in the same period in 2022, and exchange losses were reduced. Overall, the company's net profit to mother in 2023 was 4.21 billion yuan, up 28.47 billion yuan year on year, and net profit margin to mother was -2.6%, up 34.9 pct year on year.
The resumption of international routes can be expected, and profit restoration can be expected as unit costs drop. Looking ahead to 2024, the international passenger transport market will recover at an accelerated pace. It is expected to reach around 6,000 weekly flights by the end of 2024, recovering to about 80% in 2019. Currently, the company's unit cost is still higher than in 2019, which is related to the insufficient utilization rate of wide-body aircraft. In the future, with the restoration of long-term routes and international routes, the company's unit costs will decrease, and profit growth can be expected. In terms of capacity investment, the company introduced a total of 37 aircraft in 2023, of which 3 were purchased and 34 leased. Looking ahead to 2024, the company is expected to deliver 82 aircraft, withdraw 40 aircraft, and reach a fleet size of 948 at the end of the period.
Considering the current overall recovery pace, adjust the company's 2024-2025 net profit forecast of 96/13.8 billion yuan, and add the 2026 net profit forecast of 162 billion yuan. Maintain a “buy” rating.
There is a risk that the macroeconomic growth rate will fall short of expectations; the risk of a depreciation of the RMB exchange rate; the risk of a sharp rise in oil prices; and the risk of safe operation.