China Southern Airlines released its annual report on March 27, 2024:
In 2023, the company achieved operating income of 159.9 billion yuan, up 84% from 2022; achieved a net loss of 4.2 billion yuan to mother, and realized a net loss of 6.4 billion yuan after deduction from mother, a significant reduction in losses compared to 2022.
In Q4 2023, the company achieved operating income of 404 billion yuan, up 139% from Q4 in 2022, down 15% from Q3 in 2023, achieving a net loss of 5.5 billion yuan to mother; achieving net loss of 6.3 billion yuan after deduction of non-return to mother.
In 2023, China's civil aviation transportation production resumed in an orderly manner. The company focused on improving the core competitiveness of the market and promoting operational quality and efficiency. However, due to the slow recovery of international routes and weak off-season demand, the company still did not reverse losses throughout the year:
In terms of operations, the growth rate of fleet introduction is low, and supply and demand are recovering rapidly. By the end of 2023, the company had 891 airliners, up 1.37% from 2022. 37 aircraft (including freighters) were introduced throughout the year, and 23 aircraft were withdrawn. In 2023, the company's ASK and RPK increased by 106% and 142%, respectively, compared to 2022, to 92% and 87% in 2019; the company's guest occupancy rate was 78.09%, up 12 pcts from 2022, and down 5 pcts from 2019.
In terms of revenue, passenger revenue increased significantly, while freight revenue declined slightly. In 2023, the company achieved passenger revenue of 139.3 billion yuan, an increase of 123% over 2022. Achieved freight revenue of 15.3 billion yuan, down 27% from 2022. Looking at passenger kilometer revenue, the company's domestic, international, and regional passenger kilometer revenue for the full year of 2023 was 0.54 yuan, 0.58 yuan, and 0.89 yuan respectively, up 6%, -71%, and -67% from 2022, respectively, and 4%, 49%, and 19%, respectively, from 2019.
On the cost side, rising oil prices and exchange rate fluctuations affect the company's operating performance. In 2023, overall oil prices were high. The company ASK withheld oil costs of 0.30 yuan, down 37% from 2022 and 12% from 2019. According to the company's disclosure, every 10% increase or decrease in the average fuel price during the reporting period will cause the company's operating costs to rise or fall by RMB 5.205 billion. In 2023, exchange rate fluctuations caused the company's exchange loss of 687 million yuan. Assuming that risk variables other than the exchange rate remained unchanged, every 1% appreciation (or depreciation) of the RMB exchange rate against the US dollar on December 31, 2023 would reduce the company's net loss by RMB 320 million.
Profit forecast and investment rating: The company's domestic routes account for a high proportion of the time, international routes focus on Asia and the Pacific, and the airline network structure converge with the industry's recovery trend, but due to multiple adverse factors, the company's performance in 2023 is still a loss. Entering 2024, the restoration of international routes will accelerate, the company's aircraft utilization rate is expected to increase further, and the company's fixed costs will continue to be diluted, thus driving the company's performance to recover upward. We maintained the company's profit forecast for 2024-2025 at $61/14.6 billion, and added a profit forecast of $161 billion for 2026. The corresponding P/E was 16.7X/6.9X/6.3X, respectively. The 2024-2026 industry pattern will continue to be optimized, the tight balance between supply and demand is evident, and ticket prices will remain high. The company will clearly benefit and maintain a “buy” rating.
Risk warning events: macroeconomic downturn risk, oil price increase risk, exchange rate fluctuation risk, risk of untimely research information updates.