2023 results are in line with market expectations
The company announced its 2023 results: revenue of 11.047 billion yuan, up 102% year on year; net profit to mother of 934 million yuan, compared to -2,995 million yuan in 2022. 4Q23 achieved revenue of 3.126 billion yuan, up 131% year on year and 2% month on month; realized net profit of 437 million yuan, while 4Q22 and 3Q23 were -892 million yuan and 364 million yuan respectively. The company's performance was in line with market expectations.
Revenue was accompanied by a recovery in passenger flow; annual duty-free revenue was approximately 1.8 billion yuan. In 2023, the company's revenue related to flight times increased 75% year on year, and passenger and mail revenue increased 246% year over year, corresponding to the two flights in 2023, and passenger throughput increased 112% and 236% year over year, respectively. The non-aviation business increased by 82% year on year, with commercial catering and logistics services increasing by 334% and 8%, respectively. The company's revenue from tax exemption contracts in 2023 was $1,788 million, of which 4Q23 confirmed rent of approximately $480 million (vs 3Q23 was $530 million). The company began implementing the new tax exemption supplementary agreement in December 2023.
Operating costs increased slightly; return on investment improved substantially. The company's operating costs increased 4% year on year in 2023, with labor and depreciation amortization increasing 7% and 9% year over year; due to the reduction in disaster prevention expenses, operation and maintenance costs fell 3% year on year. In 2023, the company achieved investment income of 661 million yuan, an increase of 274.35% over the previous year, mainly due to significant improvements in investment income from Degol Momentum, Ground Service Company and Oil Company; in 2023, newly acquired assets Uni-Champion and Nisshang Internet contributed 0.77 million yuan and 122 million yuan respectively.
Development trends
Passenger flow repair and acceleration; focus on sales performance under the new duty-free contract. In February 2024, the company's domestic and international passenger throughput was restored to 120% and 80% respectively in the same period in 2019, which is 16ppt and 12ppt respectively higher than the recovery level in December 2023. It is recommended to pay attention to changes in airport fragrance discounts under the new duty-free contract, the introduction of boutique brands, and the effectiveness of the online reservation model.
The fourth phase of the project is progressing steadily. According to the Shanghai Municipal Bureau of Planning and Resources and Development and Reform Commission, the fourth phase of the Pudong Airport expansion project is expected to be basically completed in 2027 and put into operation in 2028. The T3 terminal covers an area of about 852,600 square meters, and the airport's guaranteed capacity will reach 130 million passengers after completion.
Profit forecasting and valuation
We lowered our 2024 and 2025 net profit by 13% and 14% to 3.306 billion yuan and 4.451 billion yuan, mainly reducing the passenger volume growth assumption and the commercial customer unit price assumption. The company's current stock price corresponds to 27.3 times the 2024 price-earnings ratio and 20.3 times the 2025 price-earnings ratio. Keep the target price of 40 yuan unchanged, corresponding to 30 times the price-earnings ratio for 2024 (26 times the original target P/E, mainly considering the improvement in the market's risk appetite for the company under the accelerated recovery of international travel), corresponding to an upward space of 10.3%.
risks
The restoration of passenger flow fell short of expectations, the performance of duty-free sales fell short of expectations, and the amount of capital expenditure was higher than expected.