Profits are still in the process of being repaired, and the flight structure is improving; maintaining a net loss of 104.3% year-on-year to 4.559 billion yuan from the “purchase” of Capital Airport; net loss to mother of 1,697 billion yuan, a year-on-year reduction of 1,830 billion yuan, in line with the profit forecast net loss of 1.65 billion yuan to 1.75 billion yuan, of which 2H23 had a net loss of 655 million yuan, and 2H22 had a net loss of 2.122 billion yuan. The year-on-year contraction in net loss was mainly due to a recovery in civil aviation demand, and FY23 passenger throughput increased 316.3% year over year. However, considering the diversion of Daxing Airport, there is still a gap in traffic compared to 2019, and the duty-free deduction rate has declined. We expect the company's net profit for 2024-2026 to be -4.21/5.19/903 million (previous value: 935/14.73/100 million). We lowered our target price based on the DCF valuation method to HK$3.50 (WACC: 10.9%, sustainable growth rate 2.0%).
Considering that the company's profits have begun to recover, and the long-term company's flight structure is expected to improve, maintaining a “buy” rating.
The recovery in traffic led to an improvement in revenue, but the impact of diversion continued
2H23 Beijing Airlines travel demand continued to pick up. Capital Airport's passenger throughput was 29.79 million passengers, up 314.4% year on year, to 59% of 2H19 (47% for 1H23). The recovery in traffic led to a recovery in the company's revenue of various businesses. Among them, aviation business revenue was 1,187 billion yuan, up 228.0%, up 30.4% month-on-month; non-aviation business revenue was 1.387 billion yuan, up 80.6% from the same period, up 29.0% month-on-month. Among them, franchise business revenue recorded 310 million yuan, an increase of 634%, and a year-on-month increase of 99.2%. 2H23's revenue was $2,573 million, up 127.8% ($1,444 million) from the same period, up 29.6% month-on-month ($588 million), or 47% in 2019. Looking at the whole year, passenger throughput also increased by 316.3%, but due to diversion from Daxing, revenue only recovered to 42% in '19.
Cost rigidity, operating leverage to reduce losses
The company's cost items such as depreciation and employees are relatively rigid. 2H23 operating costs were 3.155 billion yuan, a slight increase of 4.3% (131 million) year over year and 14.4% (398 million) month-on-month increase, which was significantly lower than the increase in revenue. The cost item after deducting franchise management fees fell 0.3% year on year, bringing positive contributions to the company's narrowing losses. In the end, 2H23 had a net loss of 655 million yuan, a year-on-year contraction of 1,467 million yuan, and a month-on-month contraction of 386 million yuan; in 2023, net loss to mother contracted by 1,830 million yuan to 1,697 million yuan year-on-year.
Adjust the target price to HK$3.50 and maintain the “Buy” rating
Looking ahead, the company's traffic is expected to continue to rise in 24, driving the company's profit recovery, but the duty-free deduction rate may be limited, and the company's overall profit will still be under pressure. We expect net profit of 2024-2026 to be -4.21/5.19/903 million (previous value: 9.35/1,473 million/-100 million), and adjust the target price based on the DCF valuation method to HK$3.50 (WACC was 10.9%, previous value was 8.3%; the previous target price was HK$6.30), taking into account The company's long-term flight structure is expected to improve, has the potential to increase profits, and maintain a “buy” rating.
Risk warning: 1) The recovery in civil aviation demand fell short of expectations; 2) duty-free sales fell short of expectations; 3) the recovery of international routes fell short of expectations; 4) The diversion of Daxing Airport exceeded expectations.