Introduction to this report:
China's aviation demand is expected to be resilient, seat reservations will resume growth, international share will gradually recover, and benefit from the construction of smart civil aviation. Controlling the company's costs is expected to be the key to recovering profitability.
Summary:
The industry's dominant position is stable, and cost control will be the key. The company has a stable dominant position in the field of civil aviation information services, creating a closed loop in the civil aviation information service ecosystem, and shouldering the heavy responsibility of building smart civil aviation.
The pandemic showed strong profit resilience in three years, and profit recovery in 2023 was slower than expected. Aviation demand is resilient, seat reservations will recover and continue to grow, and profitability recovery will depend on cost control.
The 2024/25 net profit forecast was lowered to 19.23 billion yuan (previously 32/36), and the 2026 forecast was added to the 2026 forecast of 2.5 billion yuan. Considering that market expectations have been adjusted, the holding increase rating is maintained.
Airline passenger traffic recovered rapidly in 2023, and the company's profit recovery was slower than seat reservations. Company profits are highly correlated with seat reservations. The total number of reservations for the full year of 2023 recovered 90% from before the epidemic. The number of reservations for domestic routes recovered by 101%, the number of reservations for domestic flights recovered by 41%, and the number of reservations for foreign flights recovered by 42%.
In 2023, the company's net profit to mother was nearly 1.4 billion yuan, double the previous year, recovering 55% from 2019, and slower than the recovery in seat reservations. The reason is that costs and expenses have recovered 92% compared to 2019, while revenue has recovered 86%. Among them, labor costs and depreciation and amortization both increased by more than 10% compared to 2019.
The international share will continue to rise in 2024, and cost control will be the key to profit recovery. 1) Seat reservations: China's aviation demand is resilient. Seats are expected to increase positively in 2024 compared to 2019, and will continue to grow steadily in the future. 2) International share: Domestic reservations are expected to increase by more than 10% in 2024 compared to 2019, and international reservations will recover by more than 70%. The share of high-priced international business is expected to rise steadily over the next three years, driving the company's AIT unit price to gradually recover. 3) The company's employee remuneration level in 2023 was lower than that of the IT industry, and technical support and maintenance costs were still lower than in 2019. Controlling the company's costs in the future will be the key to the pace at which profitability is restored.
Shouldering the heavy responsibility of building smart civil aviation, the late 14th Five-Year Plan period may reach a peak in settlement. The company is the main force in information services for China's civil aviation industry, shouldering the heavy responsibility of building smart civil aviation. In the early 14th Five-Year Plan period, the company benefited from the acceleration of airport construction, renovation and expansion, and undertook smart civil aviation construction projects. The cumulative revenue from the software and hardware system integration business increased by nearly 50% in 2020-22. Considering that the software and hardware systems business generally needs to be completed to confirm revenue and profit, revenue was reduced in 2023 due to a decrease in the number of projects that met the completion acceptance conditions. It is expected that the late 14th Five-Year Plan period will see a peak in project completion and settlement, and profit contributions may increase significantly.
Risk warning. Economic fluctuations, slower than expected international recovery, industry policies, system security, etc.