1Q24 results are in line with our expectations

The company announced 1Q24 results: revenue of 3,029 billion yuan, up 41% year on year, down 3% month on month; net profit to mother was 386 million yuan, while 1Q23 and 4Q23 were -99 million yuan and 437 million yuan respectively. The company's performance was basically in line with our expectations.

1Q24 Business volume grew well; waiting for the tax exempt business to be repaired. The company's 1Q24 take-off and landing flights (including Pudong and Hongqiao) increased 32% year-on-year, 5% month-on-month, and recovered to 102% in the same period in 2019; passenger throughput increased 59% year-on-year, 12% month-on-month, and recovered to 101% in the same period in 2019. Its domestic and international passenger throughput in China recovered to 115% and 75% respectively. The month-on-month growth rate of the company's revenue was lower than the corresponding business volume growth rate. We think it may be due to the slow growth rate of some of Africa's aviation revenue. The company confirmed duty-free rent revenue of 347 million yuan in 1Q24, while 4Q23 confirmed duty-free rental income of about 480 million yuan. According to the deduction range in the company's tax exemption contract (18% to 36%), we estimate that 1Q24 duty-free sales were about 1 billion to 1.9 billion yuan, and the customer unit price may still be far from pre-pandemic levels.

Cost control is quite effective. The company's 1Q24 operating costs increased 7% year-on-year and fell 6% month-on-month. While business volume was drastically restored, they were stable and well controlled. 1Q24 achieved investment income of 123 million yuan, a year-on-year increase of 2% and a year-on-month decline of 55%.

Development trends

The fourth phase of the project is progressing steadily. According to the Shanghai Municipal Bureau of Planning and Resources and Development and Reform Commission, the fourth phase of the Pudong Airport expansion project is expected to be basically completed in 2027 and put into operation in 2028. The T3 terminal covers an area of about 852,600 square meters, and the airport's guaranteed capacity will reach 130 million passengers after completion.

Profit forecasting and valuation

We keep the company's 2024 and 2025 profit forecasts unchanged at 33.06 billion yuan and 4.451 billion yuan. The current stock price corresponds to 28.3 times the 2024 price-earnings ratio and 21.0 times the 2025 price-earnings ratio. Maintaining an outperforming industry rating and target price of 40 yuan, corresponding to 30 times the 2024 price-earnings ratio, with 6% upside compared to the current stock price.

risks

The restoration of passenger flow fell short of expectations, the performance of duty-free sales fell short of expectations, and the amount of capital expenditure was higher than expected.