Event: The company released its 2023 annual report. The company achieved operating income of 11 billion yuan in 2023, an increase of 102% over the previous year (after adjustment); realized net profit of 9.3 billion yuan, turning a loss into a profit over the same period of the previous year (loss of 3 billion yuan); and realized net profit deducted from non-mother of 830 million yuan, turning a loss into a profit over the same period of the previous year (loss of 3.1 billion yuan). The company's revenue for the fourth quarter of 2023 was about 3.13 billion yuan, up 131% year on year and 2.4% month on month; net profit to mother was about 440 million yuan, up 149% year on year and 20% month on month; net profit after deducting non-return to mother was about 370 million yuan, up 139% year on year and 7.4% month on month. The company plans to pay a cash dividend of 0.12 yuan/share (tax included), with a cash dividend rate of about 32%, returning to the 2013-2019 level.
The civil aviation industry continued to recover, and business volume continued to recover in both markets. The number of aircraft take-off and landing at Pudong Airport in 2023 was about 434,000, recovering to 84.8% in 2019. The number of flights taken off and landing in China increased by 10% compared to 2019, and the number of international and regional take-offs and landings recovered to 53.5% and 73.1% in 2019, respectively; passenger throughput of about 54.48 million passengers returned to 71.5% in 2019. Passenger throughput within China increased by 1.2% compared to 2019. International and regional passenger throughput increased by 38.6% and 63.5%, respectively, compared with 2019. The number of aircraft taking off and landing at Hongqiao Airport in 2023 was about 267,000, recovering to 93.1% in 2019, and passenger throughput of about 42.49 million, recovering to 97.8% in 2019.
Revenue recovered rapidly, and gross margin improved year over year. The company's aviation revenue in 23 was about 4.38 billion yuan, up 140% from the same period in '22, up 7.2%; non-aviation revenue was about 6.67 billion yuan, up 82% from the same period in '22, and down 2.8% from the same period in '19. Of these, duty-free revenue was about 1,788 billion yuan, a significant increase over the same period in '22 (360 million), and lower than the same period in '19 ($3.788 billion). The company's main business cost in '23 was about 9.22 billion yuan, an increase of 3.6% over the same period in '22, and an increase of 73% over the same period in '19 (mainly due to the entry of assets such as Pudong Airport Satellite Hall and Hongqiao Airport). Overall, the company's consolidated gross margin was about 16.5% in '23, changing from negative to positive compared to the same period in '22 (-62%), and there is still a big gap compared to the same period in '19 (51.2%). In terms of holding subsidiaries, Hongqiao Airport Company and Airport Logistics Company achieved net profits of 257 million and 467 million respectively in '23, down 50% and 22% respectively from the same period in '19.
The market is too pessimistic about the future prospects of duty-free airports. We believe that the airport duty-free business still has room for development in the future: 1. The competitive advantage of the airport port duty-free channel is still there: Hainan outlying island tax exemption, city tax exemption, and airport port tax exemption. The integration of the three major channel customer groups is low, and the airport port duty-free channel still has its own unique competitive advantage. 2. In the future, airport deductions are likely to reach the regulatory limit: There is still competition within domestic duty-free operators. In the future market-based bidding environment, there is still a high probability that the newly agreed airport deduction rate will reach the regulatory limit. 3. In the future, the decline in airport deduction rates will drive an increase in duty-free sales, and airport tax exemptions still have a “quantitative compensation” logic.
Investment advice: The civil aviation industry continued to recover in 23 years, and the company's overall business situation improved; with the continuous recovery of supply and demand for overseas routes in 24, the company's duty-free business and profitability will continue to recover. We maintained the company's 24-25 net profit forecast of 2.92 billion yuan and 3.80 billion yuan, respectively, and added the company's 26-year net profit forecast of 5.09 billion yuan; maintained the company's “increase in holdings” rating.
Risk warning: The macroeconomic downturn affects the decline in aviation demand; the hourly capacity of airports is increasing slowly; passenger throughput on overseas routes is growing slowly; the deduction rate for tax exemption agreements falls or other adjustments.