China Eastern Airlines released its 2023 annual report on March 28, 2024, and achieved significant loss reduction:

In 2023, the company achieved operating income of 113.7 billion yuan, net loss due to mother of 8.2 billion yuan, and net loss of deducted non-return to mother of 8.9 billion yuan, a significant reduction in losses compared to 2022.

In Q4 2023, the company achieved operating income of 28.2 billion yuan, down 22% from Q3 in 2023, achieved a net loss of 5.6 billion yuan to mother, and realized net loss of 5.7 billion yuan without deduction to mother.

In 2023, the aviation market continued to recover, but due to factors such as slow recovery in international flights, increased domestic market supply, and weak public and commercial travel, the company's performance still showed losses:

In terms of operations, there was a net increase of 7 aircraft in 2023, and the company's production and operation did not resume until the same period in 2019. By the end of December 2023, the company operated 782 airliners, a net increase of 7 over the end of 2022. In 2023, the company's usable seat kilometers (ASK) and passenger turnover (RPK) recovered to 91% and 82% respectively in the same period in 2019. The company's average occupancy rate in 2023 was 74%, which is still lower than 7.6pct in the same period in 2019.

In terms of revenue, passenger revenue recovered significantly, and freight revenue returned to pre-pandemic levels. In 2023, the company achieved passenger revenue of 104.6 billion yuan, up 199% from 2022. Achieved freight revenue of 3.6 billion yuan, down 53% from 2022, and close to 3.8 billion yuan in 2019. Looking at passenger kilometer revenue (company disclosure scale), the company's domestic, international, and regional passenger kilometer revenue for the full year of 2023 was 0.58 yuan, 0.63 yuan, and 0.79 yuan respectively, up 6%, -70%, and -24% from 2022, and 8%, 33%, and 6% from 2019, respectively.

In terms of costs, the cost of withholding oil per unit has dropped significantly, and rising oil prices and exchange rate fluctuations have affected the company's operating performance. In 2023, overall oil prices were high. The company's ASK withheld oil costs of 0.29 yuan, down 47% from 2022, and up 8% from 2019. According to the company's disclosure, for every 5% increase or decrease in average fuel prices during the reporting period, aviation fuel costs will rise or fall by RMB 2,055 billion. In 2023, exchange rate fluctuations caused the company to lose 901 million yuan in exchange, a sharp decrease from last year. As of December 31, 2023, every 1% increase in the USD/RMB exchange rate will reduce the company's total profit by RMB 297 million.

Profit forecast and investment rating: The company is the two largest carriers in Shanghai, and first-tier cities have obvious advantages in interflight routes. The company's performance in 2023 was drastically reduced. In 2024, the aircraft utilization rate of the entire industry will continue to increase, and the restoration of international routes will accelerate, and the company will clearly benefit. We maintained our previous forecast for the company's 2024-2025 performance of 6712.7 billion yuan, and added an additional 2026 performance forecast of 13.6 billion yuan, corresponding to PE/ of 12.1X/6.4X/6.0X, respectively. It is expected that in 2024-2026, the industry pattern will continue to improve, international routes will continue to recover, and the company's aircraft utilization rate is expected to continue to increase, thereby diluting fixed costs, driving performance growth, and maintaining a “buy” rating.

Risk warning events: macroeconomic downturn risk, oil price increase risk, exchange rate fluctuation risk, risk of untimely research information updates.