Core views:
Incident: China Eastern Airlines released its 2023 annual report. Revenue for the whole year was 113.74 billion yuan/yoy +145.63%, equivalent to 94.15% in 2019; net profit to mother - 8.17 billion yuan, a year-on-year loss of 29.19 billion yuan; net profit without return to mother - 8.944 billion yuan, a year-on-year loss of 29.09 billion yuan.
The pace of business recovery is steady, and revenue in '23 is basically the same as in '19: the company's annual passenger traffic reached 116 million passengers in '23, which is equivalent to about 90% for the same period in '19. Of these, 4Q carried more than 30 million passengers, which is equivalent to 95% of the same period in '19. Along with the steady return to normal operations, the company's annual revenue increased by 67.6 billion yuan year on year, of which passenger revenue increased 69.6 billion yuan year on year. The annual RASK was 0.43 yuan/yoy +17%, which is equivalent to 105% in 2019.
CASK fell 40% year on year, and lost 29.2 billion yuan year on year: on the cost side, the average annual price of Brent crude oil futures settlement price fell 17% year on year in '23, compounded by an increase in fleet turnover. The company's CASK was 0.46 yuan/yoy -41%. In terms of expenses, benefiting from the narrowing of exchange losses, the company's financial expenses fell by 1,809 billion yuan year-on-year to 6.535 billion yuan in '23, helping the company drastically reduce losses throughout the year. Of this, net profit for the fourth quarter was 5.561 billion yuan, a year-on-year decrease of 3.709 billion yuan.
The logic of supply and price increases continues to be strengthened, and profits are expected to continue to improve: China Eastern Airlines, as one of China's top three state-owned air transport groups, has continued to steadily advance the “four beams and eight pillars” route network layout around the Beijing-Shanghai double main base in recent years. At the industry level, the supply restriction logic and price increase logic are still being strengthened. After the cycle continues to rise, China Eastern Airlines will fully benefit from the complete reversal of supply and demand in the industry.
Profit forecasting and investment advice. The company's net profit for 24-26 is estimated to be $56.115.11.3 billion. Referring to comparable companies, the 24-year PE 18X is given, corresponding to the reasonable value of the company's A shares of 4.62 yuan/share, taking into account the A/H share premium factor, corresponding to a reasonable value of HK$3.01 per share for H shares, which is covered for the first time to give a “gain” rating.
Risk warning: economic fluctuations; major policy changes; increased competition; cost control falls short of expectations.