The company announced its 2023 annual report: loss to mother of 4.2 billion yuan in 2023, loss of 5.5 billion yuan in Q4, financial data: loss to mother of 4.2 billion yuan in 2023, loss of 5.5 billion yuan in Q4. 1) Full year of 2023: Revenue of $159.93 billion, +83.7% year over year, +3.6% compared to year 19, loss of 4.21 billion yuan (loss of 32.68 billion yuan for the same period in '22), loss of 6.42 billion yuan after deduction, RMB 1.7% depreciation for the whole year, and exchange loss of 690 million yuan. 2) 2023Q4: Revenue of $40.4 billion, +139.3% year over year; loss to mother of 5.53 billion (loss of 15.10 billion yuan in 22Q4), after deducting non-loss of 6.27 billion yuan, RMB 1.4% appreciation in Q4, estimated exchange earnings of 430 million yuan. 3) Freight revenue: Annual revenue of 15.3 billion yuan, -26.9% year on year, revenue per tonne kilometer was RMB 1.88, down 33.57% year on year; the holding company China Southern Airlines Logistics had revenue of 16.61 billion yuan in 2023, -22.9% year on year, net profit of 2.43 billion yuan, or -47.8% year on year. 4) Non-profit and loss: Non-profit for the full year of 2023 was 2.21 billion, an increase of 870 million over the previous year, mainly income of 801 million from changes in the fair value of derivatives derived from convertible bonds. 5) Investment loss: The loss of investment in Sichuan Airlines was confirmed at 2.34 billion in '23. 2. Operating data: 2023: ASK +105.5% YoY, -8.1% YoY, RPK +141.9% YoY, -13.3% YoY in '19, Guest occupancy rate 78.1%, +11.7pct YoY, and -4.7pct YoY. 2023Q4: ASK +192.3% YoY, -3.9% YoY, RPK +251.3% YoY, -6.7% YoY, -6.7% YoY, 79.8% Guest Occupancy Rate, +13.4pct YoY, -2.4pct YoY. 3. Revenue level: Annual passenger kilometer revenue exceeded 13.4% in 2019. 1) Passenger revenue per kilometer in 2023 (including fuel surcharges) was 0.55 yuan, -6.2% year over year, +13.4% over the same period in '19, and 0.43 yuan per seat kilometer, +10.4% year over year, and +7.0% compared to '19. 2) 2023Q4 passenger kilometer revenue was 0.50 yuan, -18.1% year-on-year, up 6.3% from the same period in 2019, and seat kilometer revenue was 0.40 yuan, -1.6% year-on-year, and +3.2% over the same period in '19. 4. Costs and expenses: 1) Operating costs in 2023 were 147.6 billion yuan, +39.4% year on year, aviation fuel costs were 52.1 billion yuan, up 59.3% year on year, and domestic oil price comprehensive production costs were -9.6% year over year. The cost of withholding oil was 95.5 billion, +30.5% year over year. The cost of a seat kilometer was 0.467 yuan, -32.2% year over year, an increase of 18.4% over 2019; the cost of withholding fuel per kilometer was 0.302 yuan, -36.5% year over year, +11.9%. 2) 2023Q4 operating costs were 41.2 billion yuan, +60.8% year over year, estimated fuel costs of 15.1 billion yuan, +167.4% year over year, seat kilometer cost 0.497 yuan, 45.0% year over year, +18.8% compared to 19 years, seat kilometer fuel withholding cost 0.314 yuan, -55.3% year over year, +6.8% year over year 19. 3) Expenses: The total of the three fees in 2023 (deduction) was $16.11 billion, +17.3% year-on-year, with a deduction rate of 10.1%. The total Deduction Fee for Q4 is $4.38 billion, +4.2% year-on-year, and the deduction rate is 10.8% (Note: R&D expenses not included). 5. Fleet introduction: A net increase of 40, 17, and 10 aircraft is expected in 24-26, corresponding growth rates of 4.4%, 1.8%, and 1.0%, respectively.

Investment advice: The 2024 peak season started well. According to China Civil Aviation Network data, from January to February, civil aviation completed a cumulative total of 120 million passengers, an increase of 44.4% over the same period in 2019. Among them, international routes completed 9262,000 passenger traffic, an increase of 706.6% over the previous year, and recovered to 76.8% in the same period in 2019. The industry transitioned to the normal season in March. We expect the number of public and business travelers to gradually pick up in the future, and the Qingming holiday in early April is expected to boost private demand. 1) Profit forecast: Considering the domestic macroeconomic background and the progress of international recovery, we adjusted the 24-25 profit forecasts to the expected net profit of 6.8 billion yuan and 10.6 billion yuan (the original forecast was profit of 8.1 billion yuan and 12.8 billion yuan), respectively, and also introduced the 2026 profit forecast to achieve an estimated net profit of 14.4 billion yuan. The corresponding 24-26 EPS was 0.37, 0.59, and 0.80 yuan, respectively, and 24-26 PE was 15, 10, and 7 times, respectively. 2) We continue to emphasize that 2023 is the base year for the new price mechanism. It is recommended that the 2024 supply and demand price derivation be based on marginal changes on a 23-year basis. Plans for more relaxed departure preparation in 24 years and more international flight recovery rates will support the supply and demand structure. Considering that international flights are still in the recovery phase for 24 years, maintaining the previous valuation method, that is, referring to the company's historical average PE and traditional pricing method for cyclical stocks, the profit during the 25-year boom period is 12 times PE, corresponding to a market value of 127.4 billion yuan and a target price of 7.03 yuan. It is expected to maintain the “recommended” rating.

Risk warning: The economy has declined sharply, oil prices have risen sharply, and the exchange rate has depreciated sharply.