The company announced its 2023 annual report: 1) Performance: Annual revenue of 11.047 billion yuan, up 101.6% year on year; profit of 934 million yuan (loss of 2.99 billion yuan in 2022); deducted non-profit of 830 million yuan (loss of 3.08 billion in 2022). 2) By quarter: Q4 revenue was $3.126 billion, compared to the same period of 131.4%, Q4 profit of $440 million, and profit of $1.0, 2.1, 350, and 370 million after deducting 23Q1-Q4, respectively. 3) Investment income: $660 million for the whole year, up 274.4% year on year. Q4 Investment revenue was $280 million, up 155.9% year over year. 4) Costs and expenses:
Annual operating costs were 9.22 billion yuan, up 3.6% year on year, annual financial expenses of 420 million yuan, down 9.4% year on year, and management expenses of 560 million yuan, +16.6% year on year.
By business situation: 1) Aviation business: aviation revenue of 4.376 billion yuan, +140.2% year over year; 2) Non-aviation business: 23 years of non-aviation business: 6.67 billion yuan, +82.34% year over year, including commercial catering revenue of 2.43 billion yuan, +333.97% year on year, logistics service revenue of 1.48 billion yuan, +8.5% year over year, other non-aviation revenue of 2.75 billion yuan, +59.3% year over year. In terms of tax-free rents, tax exempt contract revenue for the full year of 2023 was 1,788 billion yuan.
Operating data: 1) Pudong Airport: Cumulative take-off and landing in 2023, passenger throughput increased by 112.2% and 284.2% year-on-year respectively, and decreased by 15.2% and 28.5% respectively from 2019. The number of passengers in China was +1.2% compared to 19, and the number of international + regional passengers was -57.5%; Q4 take-off and landing, passenger throughput increased 119.1% and 275.9% year-on-year respectively; it decreased 4.0% and 13.7%, respectively. The number of passengers in China was +11.8% compared to 19, and the number of international and regional passengers was -39.2%. 2) Hongqiao Airport: Q4 take-off and passenger throughput were +78.50% and +141.03% year-on-year, respectively.
A new supplementary agreement has been implemented, and cooperation between China and free cooperation has been achieved to jointly increase sales. On December 26, 2023, the company announced that it had signed a supplementary agreement with China Exemption, returning to the “guarantee, commission increase” model, but the guarantee amount and commission ratio were adjusted. 1) Commission ratio: Reduced to 18%-36% to enhance the price advantage. Under the original contract, Shanghai Airport's comprehensive commission ratio was 42.5% (flavoring, tobacco, alcohol, food 45%, boutique 25%). The commission ratio is divided into the five major categories of flavorings, tobacco, alcohol, department stores, and food, with a ratio of 18%-36%. At the same time, an incentive mechanism is set up to exceed the monthly sales commission amount corresponding to the target portion of the monthly actual expenses, and a more flexible adjustment mechanism is adopted to calculate the sales commission. 2) Guarantee amount: There has been a reduction. According to the latest supplementary agreement, the annual guarantee amount of Pudong and Hongqiao airports was adjusted to 629 million or 78 million, under the condition that international + regional passengers from Pudong and Hongqiao exceeded 80% of the average monthly volume in 2023Q3 (23Q3 international passengers at Pudong Airport only recovered to 55% in the same period in 2019). 3) The company will join forces with China Free to increase sales. Joint airport cancellation will expand sales by establishing “online reservation+airport pickup”, “offline local store reservation+airport pickup”, and strengthening department store boutiques. 4) In addition, it previously transferred 32% of Uni-Champion's shares. After penetration, the core assets were 15.68% of the shares in Nisshang Shanghai, Rishang China, Zhongfu Capital, and Zhongbin Daxing. The company participated in tax-free operating profit sharing and is expected to further strengthen the integrated development of “airport+tax exemption”.
Investment suggestions: 1) Profit forecast: Considering the recovery progress of international travelers, we adjusted the 24-25 profit forecasts to profit of 3.29 billion and 4.36 billion (the original forecast was profit of 3.04 billion yuan and 4.29 billion yuan), and also introduced the 26-year profit forecast to profit of 4.86 billion yuan, corresponding EPS of 1.32, 1.75, and 1.95 yuan, respectively, and PE of 28, 21, and 19 times, respectively. 2) Investment proposal: In the context of the continued restoration of international routes, the airport will continue to be an important duty-free sales channel. Under the new supplementary agreement, the company will cooperate with China for a win-win situation and jointly increase sales.
Maintaining the previous valuation method, the profit was 4.36 billion under a 25-year steady state. According to 25 times the historical PE average before the pandemic, a target price of 43.8 yuan was given. It is expected to be 20% more space than the current one, and the “recommended” rating is emphasized.
Risk warning: The economy has declined sharply, and the recovery in demand for international routes falls short of expectations.