2H23 profit declined markedly month-on-month, and increased steadily after being optimistic; maintaining a “buy” rating
The net profit of China Civil Aviation Information Network (CCNA) in 2023 was 1,399 billion yuan, up 123.1% year on year, and operating income was 6.984 billion yuan, up 34.0% year on year. Net profit was in line with the company's profit forecast of 1.25 to 1.45 billion yuan. 2H23 China's civil aviation industry continues to recover, but cost increases and credit impairment losses reduce profits. 2H23's net profit to mother was only 199 million yuan, down 83.5% from the previous month. We forecast net profit of 19.61/21.89/2,429 billion yuan for 2024-2026 (pre-2024/2025 value:
32.75/38.08 billion). Referring to the company's average PE value for the past 10 years and the latest exchange rate, the 2024E PE is 23 times, and the target price is HK$17.00 (HK$19.60 before the target price). As processing volume continues to increase and the impact of impairment losses weakens, the company's profits are expected to recover further, and we are optimistic that the company will maintain its leading position for a long time and maintain a “buy” rating.
Continued recovery of civil aviation drives rapid growth in AIT and ASC business
2H23 Airlines' business processing volume increased 18.4% month-on-month, but the decline in aviation information technology (AIT) unit prices increased AIT revenue by 3.7% month-on-month to 1.961 billion. The annual airline processing volume also increased by 148.7%, or 90% in 2019. AIT revenue recorded 3851 million yuan, an increase of 149.0%; 2H23 Settlement and Clearing (ASC) revenue was 262 million, an increase of 41.3% month-on-month. The system integration business, or due to differences in the pace of project acceptance, 2H23's revenue increased 109.9% month-on-month to 673 million, but annual revenue was 994 million, down 41.4% from the same period. 2H23 data network and other revenue was 780 million yuan, down 14.4% month-on-month. In the end, 2H23's revenue was 3.676 billion yuan, up 11.1% month-on-month; FY23's revenue was 6.984 billion yuan, up 34.0% from the same period.
We are optimistic that the company's revenue will continue to improve in the recovery of China's civil aviation industry in '24.
Increased costs and credit impairment losses drag down 2H23 profits
Or because some of the costs were recorded in the second half of the year, 2H23's operating costs were 3.123 billion yuan, an increase of 43.4% month-on-month, mainly due to 2H23 labor costs of 1,351 million yuan, an increase of 89.8% month-on-month, and technical support and maintenance costs of 447 million yuan, an increase of 69.7% month-on-month. Additionally, 2H23 calculated credit impairment losses of $421 million, which had a negative impact of $538 million over the previous month. In the end, the company's net profit from 2H23 was only 199 million yuan, down 83.5% from the previous month. Looking at the full year, the company's operating cost was 5.301 billion yuan, an increase of 12.1%, which was significantly less than the revenue increase, reflecting a certain operating leverage. Net profit to mother was 1,399 billion yuan, an increase of 123.1%.
Adjust the target price to HK$17.00 to maintain the “Buy” rating
We expect net profit to be 19.61/21.89/2,429 million for 2024-2026 (before 2024/2025:32.75/38.08). Referring to the company's average PE value for the past 10 years and the latest exchange rate, the target price is HK$17.00 (2024E EPS is 0.67 yuan; the previous target price is HK$19.60). The company's profit level is expected to further recover with civil aviation traffic, and we are optimistic that China Aviation Communications will maintain its leading position for a long time and maintain a “buy” rating.
Risk warning: 1) The recovery in civil aviation demand was weaker than expected; 2) Business operations other than AIT fell short of expectations; 3) IT staff turnover and cost increases are at risk.