Profit for the whole year improved, but it still needs to wait until 2019; maintaining the “increase” of Shanghai Airport's operating income in 2023 was 11.047 billion yuan, up 101.6%. Net profit to mother was 934 million (net loss to mother of 2,995 million yuan in 2022), and net profit to mother of 91-1.08 billion in line with the company's profit forecast, of which 4Q23 net profit was 437 million, an increase of 20.0% over the previous year. The company's traffic is expected to continue to increase in 24, but the duty-free deduction rate has declined, and profits may still have to wait. We forecast net profit of 24.14/34.00/3,965 billion yuan in 2024-2026 (previous value:

31.12/34.60 billion). We use the DCF valuation method. WACC is 10.9%, the sustainable growth rate is 2.0%, and the target price is 40.20 yuan (previous value 35.00 yuan). Maintain an “increase in holdings.”

Revenue rebounded significantly in 2023 as traffic picked up

In the 4Q23 low season of civil aviation, the company's traffic declined slightly from month to month. Pudong+Hongqiao passenger throughput was 26.98 million passengers, a decrease of 3.2% over the previous month. However, Pudong's international+ regional routes recovered to 61% of 3Q19 (55% in 3Q23), and improvements in the route structure enabled the company to record 4Q23 revenue of 3.126 billion, a slight increase of 2.4% over the previous month. Of this, revenue from tax exemption agreements was 480 million yuan, a decrease of 50 million over the previous month. Looking at the whole year, the company's passenger throughput was 96.97 million, up 235.7% year on year. Among them, the Pudong International+ Regional Line recovered to 43% in 2019, driving the company's annual revenue up 101.6% year on year to 11.047 billion, of which revenue from tax exemption agreements was 1.79 billion yuan, an increase of 1.43 billion yuan.

Profitability is still improving, but there is still a significant gap compared to '19

4Q23 Shanghai Airport's operating cost was 2.457 billion yuan, up 2.9% month-on-month, similar to the month-on-month increase in revenue. Gross profit was 669 million yuan, an increase of 0.06 million yuan over the previous month. In addition, investment income was recorded at 275 million yuan, an increase of 109 million over the previous month. In the end, the company's net profit for 4Q23 improved again, rising 73 million to 437 million over the previous month. Looking at the full year, due to a significant recovery in traffic, the company's operating leverage was evident. Gross profit increased by 5.245 billion yuan to 1,824 million yuan, driving net loss to mother down 3,929 million yuan, and corrected to net profit of 934 million yuan. However, international route traffic is still recovering, and the deduction rate due to the new tax exemption agreement has declined. Even considering the assets merged and acquired in '22, the company's profit level will have to wait to return to 2019.

Adjust the target price to 40.20 yuan and maintain the “gain” rating

Considering the decline in the deduction rate and the uncertainty of duty-free consumption, we predict that 24E-26E net profit will be 24.14/34.00/3,965 billion (previous value: 31.12/3.460/100 million). Based on the DCF method, the target price will be adjusted to 40.20 yuan (WACC 10.9%, previous value 11.4%; sustainable growth rate remains unchanged at 2.0%, previous target price is 35.00 yuan); the medium- to long-term Shanghai traffic concentration and monetization capacity is still outstanding. The assets merged and acquired in '22 are expected to gradually contribute to the increase in profit and maintain “growth” Hold it”.

Risk warning: Duty-free sales fell short of expectations, traffic recovery fell short of expectations, and peak growth fell short of expectations.