2023 results are in line with our expectations
The company announced its 2023 results: revenue of 6.984 billion yuan, up 34% year on year; net profit to mother of 1,399 billion yuan, up 123% year on year, in line with our expectations. 2H23's revenue was 3.676 billion yuan, up 25% year on year, up 11% month on month; net profit was 199 million yuan, up 8% year on year, down 83% month on month. The board of directors recommended a dividend of 0.16 yuan/share, with a corresponding dividend ratio of 33% (25% for vs2022).
The 2H23AIT business has been accompanied by a steady recovery in the aviation industry, but system integration and technical services have been hampered. The company's 2H23 AIT business achieved revenue of 1,961 billion yuan, up 163% year on year, and recovered to 85% in 2019, of which total seat reservation volume increased 154% year over year and recovered to 96% in 2019; unit price increased 4% year over year to 5.8 yuan/seat, compared to 6.5 yuan in the same period in 2019. We believe it was mainly affected by the slow recovery of international flights with higher unit prices. 2H23 system integration declined 39% year over year, mainly due to a decrease in completion and acceptance projects; other businesses declined 22% year over year, mainly due to a 41% year-on-year decline in technical services.
2H23 operating costs increased 7% year over year; credit impairment charges dragged down performance. The company's 2H23 cost increase was mainly driven by rising labor costs. 2H23 labor costs increased 15% year over year and 14% year over year. Mainly due to the increase in employee remuneration and social insurance, the number of employees remained stable at the end of the period.
2H23 accrued credit impairment losses of 421 million yuan.
Development trends
AIT business throughput continues to recover steadily. According to the company's announcement, in February 2024, the company's domestic flight processing capacity was restored to 120%, 77%, and 55% in the same period in 2019, respectively, an increase of 21ppt, 8ppt, and 11ppt compared with the recovery situation in December 2023.
Follow the progress of stock value-added rights. On December 28, 2023, the company issued a proposal to adopt the third phase of the Stock Value-added Rights Plan. Since the prerequisites were not met, the plan was not submitted to the Extraordinary General Meeting of Shareholders to be held on January 25, 2024 for approval. It is recommended to continue to monitor subsequent developments.
Profit forecasting and valuation
Considering that the company's business volume recovery in early 2024 was slightly better than our original expectations, we slightly raised 2024 and 2025 net profit by 7.5% and 4.3% to $1,941 million and $2,348 million.
The current stock price corresponds to 12.0 times the 2024 price-earnings ratio and 9.5 times the 2025 price-earnings ratio.
Maintaining an outperforming industry rating, we raised our target price by 4% to HK$11.3, which corresponds to 15 times the price-earnings ratio of 2024, with 26% upside compared to the current stock price.
risks
Demand for civil aviation fell short of expectations; cost growth was higher than expected; large depreciation preparations were made.