The 4Q23 boom picked up and is expected to continue, driving strong profit growth in 24 years; maintaining the 2023 revenue of “buying” China Eastern Airlines Logistics of 20.621 billion yuan, a decrease of 12.1%, and net profit to mother of 2,488 billion yuan, a decrease of 31.6%, higher than our expectations of 6%. Among them, net profit for 4Q23 was 823 million yuan, up 18.7% year on year, up 109.1% month on month. Overall global air freight remained in a high downward trend in 2023, but under the impetus of cross-border e-commerce platforms, the 4Q23 boom improved markedly, and profits exceeded expectations, and are expected to continue thereafter. Considering demand support from cross-border e-commerce platforms and the strong price performance of Changxie, we forecast 24-26 net profit of 35.95/42.19/4.563 billion (previous value 30.25/37.24 billion), giving comparable companies an average valuation value of 10.6xPE in 2024, corresponding to a target price of 24.00 yuan. At the same time, we are optimistic that the company will improve its integrated logistics capabilities, create a second growth curve, and maintain a “buy” rating.

Overall revenue was under pressure in '23, but there was a marked improvement in 4Q23

The air cargo boom declined in '23, and the TAC Pudong Airport outbound air freight index fell 39% year on year, causing air speed operations to drop by 31.4%. However, in 4Q23, with the peak season and cargo demand from cross-border e-commerce platforms, the air cargo boom picked up markedly from month to month. The TAC Pudong Airport outbound air freight index increased 37% month-on-month, and the company's 4Q23 air speed operating revenue was 2,664 billion yuan, an increase of 38.4% over the previous month. In terms of integrated terrestrial business, processing volume increased 9.0% in '23, and revenue reached 2,367 billion yuan, up 0.6%; 4Q23 revenue was 618 million yuan, up 6.2% month-on-month. The integrated logistics solutions business grew steadily, with revenue of 9.125 billion yuan in 2023, an increase of 16.7%; 4Q23 revenue was 3.105 billion yuan, an increase of 32.5% over the previous month. In the end, the company's 4Q23 main business revenue totaled 6.387 billion yuan, an increase of 31.7% over the previous month.

The 4Q23 peak season was driven by e-commerce demand. The company's profit picked up significantly month-on-month. 4Q23's gross margin increased 7.2 pcts month-on-month to 22.5%, gross profit of 1,435 million yuan, up 93.9% month-on-month, and net profit to mother of 823 million, up 109.1% month-on-month. Among them, Air Express enjoyed price flexibility during the peak season, with a gross profit margin of 26.1%, an increase of 12.9 pct month-on-month, and gross profit of 172.9% month-on-month to 696 million; the integrated logistics solution was driven by e-commerce demand, with a gross profit margin of 15.2%, an increase of 7.4 pct month-on-month, and a gross profit increase of 158.9% month-on-month to 472 million; the ground integrated business remained stable, with a high gross margin of 3.4 pct to 42.7% month-on-month, and gross profit decreased 1.6% month-on-month to 264 million yuan.

The boom is expected to continue, with the target price adjusted to 24.00 yuan to maintain the “buy” rating. We believe that the strong demand for cross-border e-commerce platforms is expected to continue, driving a year-on-year recovery in the 24-year boom. At the same time, the company will continue to expand its fleet size in an orderly manner, and profits are expected to rebound rapidly. We forecast net profit from 24-26 to 35.95/42.19/4.563 billion (previous value: 30.25/37.24 billion). As an aviation logistics company, we refer to comparable companies with similar market capitalization (Sinotrans, Huamao Logistics, Yuantong Express) and give comparable companies a 24-year average valuation value of 10.6xPE (previous value 10x24E PE), corresponding to a target price of 24.00 yuan (previous value 19.10 yuan). At the same time, we believe that air freight is improving its position in the global supply chain, and we are optimistic that the company will achieve transformation and upgrading, build a global logistics service provider, and maintain “buying.”

Risk warning: Air cargo demand and integrated logistics business development fell short of expectations, and supply growth exceeded expectations.