Core views:

China Eastern Airlines Logistics released its 2023 annual report: in 2023, the company achieved revenue of 20.6 billion yuan, a year-on-year decrease of 12%; realized net profit of 2.5 billion yuan, a year-on-year decrease of 32%.

With more efforts, the company's business volume grew at a high year-on-year rate. According to the annual report for the year 23, the company's air express freight volume was 1.45,000 tons/yoy +26.42%, and the daily utilization rate of all freighters was 12.56 hours/yoy +12.85%, of which the 4Q23 daily utilization rate reached 14.29 hours; the integrated logistics sector doubled the volume of cross-border e-commerce exports by 9%, and the volume of cross-border e-commerce goods volume was about 110,000 tons/yoy +83.55%, and the export order volume was 53.49 million tons/yoy +113.7%; the ground integrated business sector was rising steadily, with annual cargo and mail processing volume of 2.4 million tons/yoy +yoy +113.7%.

Cross-border e-commerce exports are booming, and the 4Q23 performance exceeded expectations. According to the annual report for the year 23, by business, air express, ground integrated services, and integrated logistics achieved revenue of 91/24/91 billion yuan respectively in 23 years, with year-on-year growth rates of -31%/+1%/+17%, respectively, and gross margins of 25%/40%/14%, respectively, with year-on-year changes of -10pp/+22pp/ -5pp. Among them, 4Q23 benefited from the rise in cross-border e-commerce export boom, and profitability improved markedly, achieving revenue of 6.4 billion yuan/yoy +10% in a single quarter, net profit of 823 million yuan/yoy +19%, and a net interest rate of 15%, an increase of 5.89pp over the previous quarter.

Supply is constrained or underestimated, demand is strong, there are plenty of highlights, and cyclical flexibility is worth looking forward to. According to Cirium, on the remote intercontinental air cargo track, there are only two main operating models, the B747F/B777F, and there is no flexibility in the introduction of new production capacity. During the boom phase of the industry, a 5% increase in freight rates for all freighters will contribute an additional 2-3 billion dollars in profit growth. Currently, off-season risks have basically been released. I am optimistic that the mismatched pace will jointly drive the upward cycle with a high win rate. The rise in freight rates will drive the company's profit flexibility to fully show.

Profit forecast and investment advice: EPS is expected to be 1.86, 2.20, and 2.24 yuan/share for 24-26, respectively. Optimistic about the booming phase of the industry, rising freight rates will bring high profit potential to the company. Maintain the judgment that the company's reasonable value is 22.32 yuan/share, corresponding to the PE valuation 12 times over 24 years, and maintain the “buy” rating.

Risk warning: risk of policy fluctuations, risk of competition in overseas warehouses, risk of increased competition, etc.