Key points of investment

2024 Interim Report: Q2 profit of 0.12 billion yuan, in line with expectations

In the first half of 2024, the company achieved operating income of 10.96 billion yuan, +17% year-on-year, and net profit to mother of about 0.49 billion yuan, or +509% year-on-year. Among them, in 24Q2, the company achieved operating income of 5.24 billion yuan, +7% year-on-year; net profit to mother was 0.12 billion yuan, which turned a year-on-year loss into profit (net profit to mother of -0.1 billion yuan in 23Q2), which is in line with expectations.

Operating data: The 24H1 fleet utilization rate exceeded 19H1, and the passenger occupancy rate in the second quarter was 83.6%

In 24Q2, the company's ASK and RPK were +14% and +17% year over year 23, respectively, and +38% and +35% year over year 19, respectively. The occupancy rate was 83.6%, +2.2 pct year on year 23, and -2.0 pct year on year 19. 24H1, the daily fleet utilization rate was 11.47 hours, exceeding the 19H1 11.20 hours. By the end of 24Q2, the company had 121 aircraft, a net increase of 4 in the first half of the year, and the annual fleet introduction plan is a net increase of 12 aircraft.

Earnings analysis: Passenger revenue declined from a high base, oil prices dragged down fuel costs, and the impact of exchange losses weakened year-on-year on the revenue side: ticket prices fell from the high base last year. 24H1, unit ASK revenue was about 0.399 yuan, -3% year on year 23; unit RPK revenue was 0.472 yuan, -7% year on year 23. In 24Q2, the unit income of ASK was 0.380 yuan, -5.7% year on year 23, -3.3% year on year 19; unit revenue of RPK was 0.45 yuan, -8.1% year on year 23, and -1% year on year 19.

Cost side: The year-on-year rise in oil prices dragged down costs, and unit non-oil costs declined. The unit operating cost of 24H1 was 0.336 yuan, -5% year on year 23, of which unit fuel cost and unit non-oil cost were -1% and -8% year on year 23. Among them, in 24Q2, the unit fuel cost was 0.128 yuan, +6% year on year 23, and +17% year on year 19, consistent with the increase in oil prices; the unit non-oil cost was 0.200 yuan, -10% year on year 23, and -17% year on year 19.

Expense side: 24H1 financial expenses were 0.74 billion yuan, -25% year-on-year, mainly due to the weakening of the impact of exchange losses due to the depreciation of the RMB. 24H1 recorded an exchange loss of about 0.057 billion yuan (23H1 exchange loss was 0.31 billion yuan).

Passenger traffic in the summer travel market is resilient, and improving oil prices and exchange rates are expected to boost performance. Summer travel passenger traffic is growing year-on-year on a high basis. In July, the company ASK and RPK were +13% and +10% year-on-year, and the number of passengers was +3% year-on-year. Their internal passenger occupancy rate in China was 88.0%, -0.4 pct year on year. Looking ahead to the medium to long term, the recovery of upstream production capacity is facing bottlenecks and supply-side logic will continue to be strengthened. The relationship between supply and demand will gradually improve, and the dividends of price increases will gradually become apparent.

Oil prices and exchange rates are improving, which is expected to boost performance. 1) Oil price sensitivity: The average price of 24H1 aviation kerosene is about 6,638 yuan/ton. If the oil price is -1% based on this, the net profit will increase by about 0.027 billion yuan. 2) Exchange rate sensitivity:

At the end of 24H1, the central price of RMB was 7.1268 against the US dollar. If the RMB appreciates 1% on this basis, it will increase net profit by about 0.057 billion yuan.

Mid-term dividend+repurchase cancellation, demonstrating the company's confidence in development

The 2024 mid-term dividend rate is 40%. Following 2016, the company once again implemented an interim dividend in 2024. It plans to pay 0.09 yuan in cash per share, with a corresponding dividend ratio of over 40%.

The first repurchase was cancelled, boosting confidence. The company plans to change the use of some of the shares already repurchased. For the 15 million shares repurchased by the company in 2024, the use was changed from the original repurchase plan “for employee stock ownership plans or equity incentives” to “use to cancel and reduce registered capital” to enhance confidence in development. If the above repurchased shares are cancelled, the company's EPS will increase by about 0.68%.

Investment advice

The company's net profit for 24-26 is estimated to be 1.306, 1.755, and 2.02 billion yuan, maintaining a “buy” rating.

Risk warning

Demand recovery falls short of expectations, and there is a risk of large fluctuations in oil prices and exchange rates.