Incident: Air China released its 2023 annual results report. In 2023, the company achieved operating income of 141.1 billion yuan, +166.7% year-on-year, and +3.6% compared with the same period in 2019; corresponding net profit to mother was recorded - 1,046 billion yuan, a sharp decrease of 37.573 billion yuan compared to 2022.
Compared with 2019, total revenue increased slightly, and the revenue level per customer increased by 14.1%. On the revenue side, 23Q1/Q2/Q3/Q4 companies achieved revenue of 251/345/459/35.6 billion yuan respectively, -23.0%/+5.5%/+21.4%/+7.6% compared with the same period in 2019. By region, domestic/international/regional revenue reached 10,02/214/40 billion yuan respectively, +221%/+346%/+419%, compared with the same period in 2019. Domestic revenue levels surpassed the same period in 2019, and there was still a large difference between international and regional line revenue; revenue per passenger kilometer in 2023 reached 0.6094 yuan, an increase of 14.1% over 0.5340 yuan in the same period in 2019.
Affected by aviation fuel prices, the company's unit fuel costs have increased a lot. On the cost side, the company achieved operating costs of 134 billion yuan in 2023, +61.8% over the same period in 2019; of these, 23Q1-Q4 companies' operating costs were 263/329/381/36.7 billion yuan, respectively, -2.3%/+18.1%/+34.1%/+22.1% compared with the same period in 2019. The operating cost per ASK unit in 2023 was 0.4581 yuan, up 16.4% from 0.3935 yuan in the same period in 2019. Among them, the unit ASK fuel cost was +27.8% compared to the same period in 2019, and the corresponding unit ASK's non-oil cost was +12.1%.
Gross margin has rebounded markedly, and there is still plenty of room for improvement. On the profit side, the company's gross margin in 2023 was 5.02%, significantly recovering from the 2022 gross profit margin of -56.6%. The difference was 11.8pct of gross margin in 2019. Among them, Q1/Q2/Q3/Q4 gross margin was -4.99%/4.79%/16.82%/-2.90%, respectively, compared to 2019, -22.3/-10.2/-7.8/-12.2pct; corresponding net profit to mother was -29.26/ -5.24/42.42/- RMB 1,838 million, -207.5%/-225.8%/+17.1%/-419.9%, respectively, compared with the same period in 2019. Affected by various factors such as the slow recovery of international routes, the imbalance between domestic and foreign supply and demand, and the maintenance of high oil prices, the company's annual performance still lost, but there was a significant recovery.
There is a large gap in passenger occupancy rates compared to 2019, and international flights have been slow to recover. In terms of business conditions, the company's usable seat kilometer ASK and passenger turnover RPK reached 87.9% and 79.1% respectively in the same period in 2019, with a passenger occupancy rate of 73.2%, a difference of 8.2 pct compared to 2019; by region, the company's domestic ASK and RPK were +13.8% and +2.3% compared to the same period in 2019, and the passenger occupancy rate was 8.4pct compared to 2019; international ASK and RPK recovered to 42.4% and 36.3% in the same period in 2019. 11.5pct; Regional ASK and RPK recovered to 65.2% and 57.5% in the same period in 2019, and the passenger occupancy rate was -9.0pct compared to 2019. From January to January 2024, the company's ASK and RPK reached 114.1% and 111.4% respectively in the same period in 2019, and there is still a 1.9 pct gap in the occupancy rate.
The utilization rate still needs to be improved, and the scale of future fleet introduction is considerable. In terms of fleet introduction and utilization, by the end of December 2023, the company had a fleet size of 905 aircraft, with an average age of 9.36 years. The company's daily aircraft utilization rate in 2023 reached 8.14 hours, 1.58 hours short of 9.72 hours in 2019. By the end of February 2024, the company's fleet reached 908 aircraft. The company plans a net increase of 33, 24 and 55 aircraft in 2024-2026, maintaining the highest capacity in the industry.
Profit forecast and investment rating: We expect the company to achieve net profit of 79.59, 101.97, and 12.234 billion yuan in 2024-2026, +860.6%, +28.1%, and +20.0% year-on-year respectively. The corresponding earnings per share are 0.48, 0.61, and 0.74 yuan, respectively. The PE corresponding to the current price is 15.22, 11.88, and 9.90 times, respectively. Currently, the company's domestic and international routes have resumed, and the relationship between supply and demand is improving at an accelerated pace. We are optimistic that the company's future profits will continue to improve, and maintain the company's “buy” rating.
Risk factors: Travel demand falls short of expectations, the recovery of international routes falls short of expectations, the risk of a sharp rise in oil prices, and the risk of a sharp devaluation of the RMB.