Key points of investment:

The cross-border air transport industry is booming. The company has mastered the resources of key trunk line transportation and ground service facilities. The competitive advantage is obvious. The profit flexibility of air express transport is expected to be released, and the revenue from integrated ground services is steady.

Leading domestic air logistics service provider

The company is the first professional air cargo company in China to complete mixed reform and listing. China Eastern Airlines Group is the controlling shareholder and actual controller of the company. The company's main business is air express transportation, ground integrated services and integrated logistics solutions, and is committed to providing customers with “one-stop” aviation integrated logistics services.

The company's overall revenue continued to grow, the capital structure improved, and cash flow increased dramatically. In 2018-2023, the company's revenue had a compound annual growth rate of 13.6%; the balance ratio decreased from 47.2% to 40.9%; and the net cash flow from operating activities increased from 0.87 billion yuan to 5.24 billion yuan, with a compound annual growth rate of 43.1%.

Supply and demand patterns tend to be tight, and industry sentiment is expected to rise

Cross-border air transport capacity is in short supply, and the industry is booming. On the supply side, it is mainly provided by the abdominal compartments of all freighters and airliners. Global aircraft production is dominated by airliners, with limited production capacity for all freighters. Currently, there are only 53 orders for Boeing's large wide-body freighters; passenger aircraft ventral capacity is slowly recovering, and flights from China to the US during the 2024 summer season have only recovered to 24% of 2019. On the demand side, going overseas on Chinese e-commerce platforms has spawned a large demand for aviation logistics. In 2023, China's cross-border e-commerce exports were 1.8 percent, +19.6% year on year; at the same time, the general aviation market continued to recover. From January to May 2024, China exported 0.3 billion mobile phones, +4.3% year on year.

Adequate flexibility in aviation logistics, steady revenue from ground services

The air express business is expected to enjoy the profit flexibility brought about by the increase in air freight rates. The company leads the industry in operating efficiency indicators such as flight frequency and daily utilization rate of all freighters. 2024Q2, the average price index for outbound air freight from Pudong Airport was 4,678, +23.0% year over year and +18.9% month over month. Integrated ground services are the cornerstone of the company's profit. The company's card exports core node resources from Shanghai Airport, and maintains a market share of more than 50%. As production capacity of the planned cargo terminal is put into operation, the company's profits will be further enhanced. Integrated logistics solutions create a second growth curve. 2024Q1, related business revenue was 2.63 billion yuan, +64.0% year over year, accounting for 50% of revenue.

Profit Forecasts and Ratings

We estimate that the company's revenue for 2024-2026 will be 25.24, 30.73, 35.07 billion yuan, respectively, +22.4%, 21.8%, 14.1%, and 3-year CAGR 19.4%; net profit to mother will be 3.25, 3.69, and 4.12 billion yuan, respectively, +30.6%, +11.5%, and 3-year CAGR of 18.3%; EPS will be 2.05, 2.33, and 2.60 yuan/share respectively. In view of the rising boom in the cross-border air transport industry, the company has mastered the resources of key trunk line transportation and ground service facilities. The competitive advantage is obvious. For the first time, coverage was given, and a “buy” rating was given.

Risk warning: Global economic recovery fell short of expectations; overseas countries introduced restrictions on China's cross-border e-commerce platforms; additional supply of all freighter capacity increased beyond expectations.