The company's recent situation
We recently invited the management of China Civil Aviation Information Network to conduct an offline non-transactional roadshow. The company exchanged views with investment institutions on issues of market concern such as business recovery, revenue prospects for various businesses, personnel salaries, equity incentives, and corporate governance.
reviews
AIT revenue in 2024 was accompanied by a steady recovery in the civil aviation industry; the system integration business may improve year over year. In February 2024, the company's domestic flight processing capacity was restored to 120%, 77%, and 55% in the same period in 2019, respectively, an increase of 21, 8, and 11 percentage points over the recovery situation in December 2023. According to the Civil Aviation Administration's forecast, in 2024, China's civil aviation industry will strive to complete passenger traffic of 690 million passengers, an increase of about 11% over the previous year; international flights will return to 80% before the epidemic by the end of 2024. Management expects the company's AIT business to benefit from the continued steady recovery of the civil aviation industry this year. The company's system integration business experienced a sharp year-on-year decline in 2023, mainly due to unbalanced airport project commencement and progress. Management expects revenue from this business to increase in 2024.
Labor costs “increase people do not increase capital”. According to the requirements of the company's supervisory authority, the company currently follows two principles in terms of labor costs: 1) “increasing people without increasing capital”; the increase in the number of employees has less impact on total wages; 2) the increase in total wages should not be higher than the increase in total profit. Management believes that the company's current average salary level of employees is lower than the IT industry average, so an appropriate increase will help support the long-term development of the company's talent development strategy. Additionally, labor costs are affected by capitalization rates.
The dividend ratio and capital expenditure are steady. The company maintained a consistent dividend policy in 2023 (40% of the parent company's net profit). As an innovative IT company, management believes that it is necessary to maintain a certain level of capital expenditure capacity to seize important opportunities for the company's development. The company's capital expenditure scale in 2023 was 1.2 billion yuan. Management expects the company's capital expenditure level to remain at 700 to 800 million yuan, but future construction of the second phase of the park project may increase by a certain margin.
Equity incentives continue to advance. On December 28, 2023, the company issued a proposal to adopt the third phase of the Stock Value-added Rights Plan. Since the prerequisites were not met, the plan was not submitted to the Extraordinary General Meeting of Shareholders to be held on January 25, 2024. Management believes that equity incentives are an important part of state-owned enterprise reform and can have a good incentive effect on core key talents. The company will steadily promote equity incentives this year in accordance with regulatory regulations.
Profit forecasting and valuation
We keep the company's 2024/2025 profit forecast of 19.41/348 million yuan unchanged. The current stock price corresponds to 13.0/10.3 times the 2024/2025 price-earnings ratio. Keep the target price of HK$11.3 unchanged, corresponding to 15 times the 2024 net profit, with 16.5% upside compared to the current stock price.
risks
Demand for civil aviation fell short of expectations; cost growth was higher than expected; large depreciation preparations were made.