Affected by the high base, 1Q24 profit declined year on year, but the boom is expected to continue to improve; maintaining “buying” China Eastern Airlines Logistics's 1Q24 revenue of 5.224 billion yuan, up 14.2% year on year, and net profit to mother of 589 million yuan, down 22.6% year on year, in line with our previous expectations of 590 million yuan. There is still a high base effect in 1Q24. The industry sentiment declined year-on-year in 1Q24, but under the impetus of cross-border e-commerce platforms, the 4Q23 boom began to improve and is expected to continue thereafter. We forecast 24-26 net profit of 35.63/41.85/4.527 billion (previous value 35.95/42.19/4.563 billion), giving comparable companies an average valuation value of 10.6xPE in 2024, corresponding to a target price of 23.75 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.

Air speed operation revenue declined year on year, but integrated logistics solutions rapidly increased the 1Q24 air cargo boom and there is a high base. The TAC Pudong Airport outbound air freight index fell 10% year on year, causing air speed operations to drop 17.1% to 2.04 billion yuan. In terms of integrated ground services, 1Q24 revenue also increased 6.8% to $590 million, or mainly due to the 5.8% increase in 1Q24 cargo and mail throughput at Pudong and Hongqiao airports. The integrated logistics solutions business continued to grow. 1Q24's revenue was 2,627 billion yuan, up 64.0% from the same period, accounting for 50% of revenue (35% in 1Q23), or mainly due to the rapid increase in cross-border e-commerce volume; in the end, the company's 1Q24 main business revenue totaled 5.221 billion yuan, an increase of 14.2% over the previous year.

Freight prices are under pressure, and the profitability of the incremental business is low. Gross profit margin declined year-on-year. In terms of gross profit, air express was affected by the decline in freight rates. 1Q24 gross profit margin was 15.6%, the same decrease was 14.6 pct, gross profit of 312 million yuan, the same decrease of 57.1%; the increase in ground service business volume showed operating leverage. The profit margin was still strong. The gross profit margin was 39.5%, the same increase of 37.2%; in terms of integrated logistics solutions, or due to the lower profit level of cross-border e-commerce related businesses, the overall gross profit margin was 10.1%., drop together 6.4 pct. However, due to the rapid increase in business volume, gross profit also increased 2.8% to 280 million yuan. In the end, the overall gross profit of the 1Q24 company was 827 million, down 29.6% from the same period, resulting in a year-on-year decline of 22.6% to 589 million yuan.

The boom is expected to continue throughout the year, with the target price adjusted to 23.75 yuan to maintain the “buy” rating. We believe that 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. Affected by cost-side fluctuations such as oil prices, we fine-tuned 24-26 net profit to 35.63/41.85/4.527 billion (previous value 35.95/42.19/4.563 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 of 10.6 xPE unchanged, corresponding to a target price of 23.75 yuan (previous value 24.00 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.