The company's recent situation

Recently, multiple positive signals are favorable to air cargo, and emphasis is placed on layout opportunities before the peak season. The 1H24 cross-border air freight supply and demand boom has surpassed our expectations. Since June, policies to support cross-border e-commerce air transportation have increased, and Amazon has launched a “fully managed” direct air transport business, all of which are conducive to the medium- to long-term improvement of the air cargo boom. We raised the company's 2024/25 profit to 3.30 billion yuan/4.44 billion yuan, and raised the target price to 26 yuan; the company is a scarce target for leading cross-border air cargo, and we reaffirm our optimism about its profit flexibility and medium- to long-term growth space.

reviews

1H24 cross-border air freight demand slightly exceeded our expectations, supply was tighter than expected, and we are optimistic that the boom will rise during the peak season.

The 1H24TAC Shanghai air freight index rose an average of 3% year on year, 2Q24 rose 23% year on year. The 2Q freight rate was not weak during the off-season, mainly due to the continuous expansion of e-commerce platforms, manufacturing air transport demand slightly exceeding our expectations, and the supply of immediate capacity such as airliner cabins was tighter than our expectations. Looking ahead to the second half of the year, considering the upcoming peak season for electronic products and e-commerce, and continued disruptions in the shipping supply chain, and cargo volume or marginal spillover to air transport, we expect air freight rates to continue to rise. We assume that spot freight rates will increase to 12% year-on-year in 2024.

The policy supports increased cross-border e-commerce and facilitates the supervision of civil aviation e-commerce and air transport. On June 12, 9 departments including the Ministry of Commerce issued “Opinions on Expanding Cross-border E-commerce Exports and Promoting Overseas Warehouse Construction”, proposing strong support for cross-border e-commerce to enable industrial development and enhance cross-border e-commerce logistics support capabilities. Since June, Guangzhou and Shanghai airports have begun to facilitate the collection and transportation of cross-border e-commerce categories with complicated transportation procedures, such as lithium batteries and cosmetics (previously, these categories mostly used transit from Hong Kong, China, etc.). We are optimistic that policy optimization will drive the efficiency of e-commerce air transport and enhance the service competitiveness of mainland related airports and airlines.

Amazon has entered “full hosting”, focusing on the positive signal significance of changes in the platform pattern for e-commerce air transport. At the end of June, Amazon plans to launch a “low-cost store” project. The categories and processes are close to Temu's “full hosting” model, and the main line uses air transportation. We believe that Amazon is fully managed as the leading e-commerce platform in the US, opening up more traffic entry for low-cost cross-border e-commerce products. It is a positive sign that the volume price of air freight and the sustainability of the small package customs clearance model are all positive signs, and we can assume more optimism about the medium- to long-term demand for e-commerce air transportation.

Profit forecasting and valuation

Based on the better-than-expected supply and demand for 1H24 air freight and the upward trend in annual freight rates, we raised the company's profit forecasts for 2024 and 25 by 16% and 33% to 3.30 billion yuan and 4.44 billion yuan; current stock prices correspond to price-earnings ratios of 9.8 times and 7.3 times, respectively. Reiterating that it outperforms the industry rating. Due to optimism about the e-commerce air transport boom, we raised our target price by 24% to 26.0 yuan, corresponding to the price-earnings ratio of 2024 and 2025, which is 12.5 times and 9.3 times, with 28% upward space compared to the current one.

risks

International trade frictions; capacity introduction falls short of expectations; overseas demand falls short of expectations.