Key points of investment

Event: The company released its 2023 annual report, achieving net profit of 2,488 billion yuan

In 2023, the company achieved operating income of 20.621 billion yuan, -12.14%; realized net profit attributable to mother of 2,488 billion yuan, or -31.58% year on year; realized net profit deducted from mother of 2,338 billion yuan, or -33.72% year on year. The decline in performance was mainly affected by the return to normalization of the air cargo market and the year-on-year decline in freight rates. The average BAI80 of the Pudong Outbound Air Cargo Index in 2023 was 4,194 points, or -38.71% compared to the same period last year. 23Q4 achieved operating income of 6.39 billion yuan, +10.11% year over year; realized net profit of 823 million yuan, +18.69% year over year; realized net profit without deduction of 809 million yuan, +24.30% year over year. On the one hand, the increase in performance in the fourth quarter was due to the rapid increase in demand for cross-border e-commerce goods. On the other hand, the company actively improved the operating efficiency of all freighters, which led to an increase in profit margins in the fourth quarter.

By section: Integrated logistics solutions are growing rapidly, and cross-border e-commerce volume is +84% year-on-year

In 2023, the company's main business revenue was 20.610 billion yuan, -12.13%. Among them, air express, ground integrated services, and integrated logistics solutions business revenue accounted for 44.24%, 11.49% and 44.28% respectively, and gross profit accounted for 50.56%, 21.62 percent and 27.82% respectively.

1) Air express business: Achieved revenue of 9.117 billion yuan, or -31.37% year-on-year, and realized gross profit of 2.241 billion yuan, or -51.78% year-on-year, gross profit margin of 24.58%, year-on-year -10.41 pct. In 2023, the company's total cargo and mail turnover was 6.824 billion tons/km, +18.80% year-on-year, and 1.4451 million tons, +26.42% year-on-year. The decline in gross margin was mainly affected by lower freight rates.

2) Integrated ground service business: achieved revenue of 2,367 billion yuan, +0.55% year over year, achieved gross profit of 958 million yuan, +119.87% year over year, gross profit margin of 40.48%, and +21.97 pct year on year. On the one hand, the company expanded its customers, compounded the impact of the low base. The cargo and mail processing volume was 2.4025 million tons, +9.04% over the same period, accounting for about 53.60% of the two markets in Shanghai. On the other hand, labor costs and epidemic prevention costs have declined, driving the gross margin of the ground integrated service business to increase.

3) Integrated logistics solution business: achieved revenue of 9.125 billion yuan, +16.74% year over year, achieved gross profit of 1,233 billion yuan, -12.65% year on year, gross profit margin 13.52%, and -4.54 pct year on year. By business, revenue from cross-border e-commerce solutions, direct delivery solutions, and customized logistics solutions was 4.698 billion yuan, 1,908 million yuan, and 328 million yuan, respectively, +71.71%, +9.26%, and -49.30% year-on-year respectively. In 2023, the company's cross-border e-commerce volume was about 110,000 tons, +83.55% year on year, fresh product import volume was about 21,600 tons, +105.22% year on year, and the number of direct charter flights to the production area was 1,072, +69.62% over the same period last year. Cost and expense side: Customer conversion and withdrawal lead to a decrease in transportation service prices

In 2023, the company achieved operating costs of 16.180 billion yuan, or -4.62%. Among them, air freight costs, transportation service prices, and aviation fuel costs accounted for 27.65%, 22.46% and 20.34% of operating costs, respectively, +131.36%, -53.25% and +23.19% year-on-year respectively. The sharp increase in air freight costs was mainly due to the increase in external procurement capacity. The sharp drop in transportation service prices was mainly due to the gradual withdrawal of passenger freight forwarding. The cost for the period was about 864 million yuan, and the cost rate for the period was 4.2%, an increase of 0.3 pct over the previous year. Mainly due to the increase in financial expenses due to the introduction of new financial leases and the introduction of aircraft, financial expenses were +30.24% compared to the same period last year.

The utilization rate of all freighters was +12.85% year-on-year, actively promoting additional cargo terminal production capacity

By the end of 2023, the company had 14 B777 freighters in operation. The average age of all freighters was only 3.5 years. The daily utilization rate of all freighters was 12.56 hours, +12.85% over the same period last year, and the operating efficiency of all freighters improved quarterly. With Shanghai as its main hub, the company carried 894,800 tons of inbound and outbound cargo and mail in Shanghai in 2023, accounting for about 23.60% of Shanghai's inbound and outbound cargo and mail throughput. At the same time, the company is steadily advancing the construction of additional production capacity projects such as the Pudong Airport West Area Cargo Terminal Phase II project and the Pudong Airport Smart Cargo Terminal to enhance service capabilities.

Future outlook: rapid growth in cross-border e-commerce volume injects new growth momentum

In 2023, China's cross-border e-commerce imports and exports were 2.38 trillion yuan, +15.6% year-on-year, continuing the high growth trend. In 2024, as cross-border e-commerce platforms accelerated their layout, cross-border e-commerce cargo volume continued to increase. On the one hand, it is expected to drive the market share of China's aviation logistics companies to increase, and on the other hand, it is expected to provide strong support for air freight rates. As of April 22, the BAI80 index was 4580, +12.0% year on year, and the air cargo index continued to rise.

Profit forecasting

With years of air cargo experience, China Eastern Airlines Logistics has accumulated strong aviation logistics core resources, forming a remarkable competitive advantage. The company's revenue for 2024-2026 is expected to be 283, 315, and 33.6 billion yuan, respectively, +37.31%, +11.07% and +6.78% year-on-year, and net profit to mother of 31.83, 35.53 and 38.86 billion yuan, respectively, +27.93%, +11.61% and +9.38%, respectively. The corresponding PE is 8.37, 7.50 and 6.86 times, respectively, maintaining the “increase” rating.

Risk warning

Risks that global trade growth falls short of expectations; risk of air freight rate fluctuations due to increased capacity, etc.