1Q24 reversed losses year on year, but profit may still have to wait; maintaining an “increase” of 1Q24's revenue of Shanghai Airport of 3,029 billion yuan, up 40.6%, and net profit to mother of 386 million yuan, which is weaker than our previously anticipated net profit of 550 million yuan, or mainly due to the fact that unit prices for duty-free customers have not improved significantly, 1Q23 was a net loss of 99 million yuan. Looking ahead to 24, the company's traffic is expected to continue to increase, but the duty-free deduction rate has declined, and profits may have to wait until 19. Considering the uncertain pace of recovery of the tax exempt business, we forecast net profit of 23.39/33.54 billion (previous value: 24.14/34.00/3,965 billion) for 2024-2026. We use the DCF valuation method. WACC is 10.9%, the sustainable growth rate is 2.0%, and the target price is 40.00 yuan (previous value: 40.20 yuan). Maintain an “increase in holdings.”
Traffic continues to rise, but the revenue from the duty-free business still needs to pick up further during the Spring Festival travel season. The passenger throughput of Pudong+Hongqiao reached 30.11 million passengers, an increase of 59.5% over the previous year. Among them, the passenger throughput of Pudong Airport reached 18.28 million passengers, an increase of 86.9%, and domestic and international+ regional routes recovered to 122% and 73% of 1Q19, respectively (112% and 61% in 4Q23). Increased traffic drove the company to record revenue of 3,029 billion yuan in 1Q24, an increase of 40.6%. However, revenue from tax exemption agreements was 347 million, a slight increase of 5.2% over the previous year, or due to a reduction in the deduction rate, customer unit prices have not improved significantly. Looking ahead, we believe that demand for civil aviation travel is still strong during the peak season, but the increase in revenue at Shanghai Airport still requires further improvement in non-aviation businesses such as duty-free.
Profit improved in 1Q24, but there is still a clear gap compared to 1Q19
1Q24's operating costs were 2,319 million yuan, up 7.0% year on year, reflecting operating leverage. Gross profit was 711 million yuan, an increase of 722 million over the previous year, driving the company's 1Q24 net profit loss to 386 million yuan, an increase of 485 million over the previous year. However, there is still a certain gap between profit and 1Q19 net profit of 1,391 billion yuan. 1Q19 has yet to inject assets such as Hongqiao, but with the support of the booming duty-free business, gross profit reached 1,533 million yuan, while recording financial revenue of 39 million yuan and investment income of 301 million yuan, which was 130 million and 178 million higher than 1Q24 respectively. Ultimately, net profit from 1Q19 was 1.05 billion yuan higher than 1Q24.
Adjust the target price to 40.00 yuan and maintain the “Overweight” rating
Considering the uncertainty of duty-free consumption, we slightly lowered 24E-26E net profit to 23.39/33.54/3910 billion (previous value: 24.14/34.00/3,965 billion), adjusted the target price to 40.00 yuan based on the DCF method (WACC 10.9%, sustainable growth rate unchanged at 2.0%, previous target price value of 40.20 yuan); the medium- to long-term Shanghai traffic gathering and monetization capacity is still outstanding. The assets merged and acquired in '22 are expected to gradually contribute to profit growth, waiting for full recovery of the monetization value of non-aviation Maintain an “increase in holdings.”
Risk warning: Duty-free sales fell short of expectations, traffic recovery fell short of expectations, and peak growth fell short of expectations.