Company Announces 2024 Semi-Annual Report: 1) 2024H1: Revenue of 10.96 billion, +17.4% year over year, +35.9% compared to 2019, net profit of 0.49 billion, +508.9% YoY, net profit of 0.48 billion, +796.7% YoY.

This is mainly due to increased travel demand during holidays such as the Spring Festival travel season in the first half of the year, compounded by the continued recovery of international routes. The price of domestic comprehensive oil production in the first half of the year was 6,618 yuan/ton, +0.8% year-on-year; in the first half of the year, the RMB depreciated 0.6%, and the exchange loss was 0.057 billion yuan. 2) 2024Q2: Revenue of 5.24 billion, +7.1% YoY, +33.2% YoY; Profit to Mother 0.12 billion, +239.7% YoY, net profit 0.1 billion, +194.8% YoY. In Q2, the domestic comprehensive oil production price was 6551 yuan/ton, +7.4% year over year, -2.0% month on month; in Q2, RMB depreciated 0.4%, and the exchange loss was estimated at 0.04 billion yuan.

Operating data: 1) 2024H1: ASK +20.6% YoY, +37.5% YoY, RPK +26.3% YoY, +36.1% YoY, +36.1% YoY, 84.5% occupancy rate, +3.8pct YoY, -0.9pct YoY. 2) 2024Q2:

ASK +13.5% YoY, +37.8% YoY, RPK +16.6% YoY, +34.6% YoY, +34.6% YoY, Guest Occupancy Rate 83.6%, +2.2pct YoY, and -2.0pct YoY.

Revenue level: 1) 2024H1: Passenger revenue per kilometer (including fuel surcharges) was 0.46 yuan, -8.9% year over year, -2.9% year over year, seat kilometer revenue 0.39 yuan, -4.5% year over year, and -3.9% year on year in '19. 2) 2024Q2: Passenger revenue per kilometer was 0.44 yuan, -9.9% YoY, -4.1% YoY, seat-kilometer revenue 0.37 yuan, -7.5% YoY, and -6.3% YoY in '19.

Costs and expenses: 1) 2024H1: operating cost 9.2 billion, +14.3% year over year, aviation fuel cost 3.54 billion yuan, up 20.0% year on year, domestic oil price comprehensive production cost during the period +0.8% year on year. The cost of withholding oil was 5.7 billion, +11.0% year-on-year. The cost of seat kilometer was 0.34 yuan, -5.2% year over year, -2.6% year over year; seat-kilometer fuel cost was 0.21 yuan, -8.0% year over year, -13.1% year over year. 2) 2024Q2: Operating cost 4.5 billion yuan, +8.4% year over year, estimated fuel cost 1.76 billion yuan, +16.5% year over year, seat kilometer cost 0.33 yuan, -4.5% year over year, -6.7% year over year in '19, 0.20 yuan for seat kilometer, -8.5% year over year, and -16.3% year on year. 3) Expenses: The total of the three 2024H1 fees (deduction) was 1.31 billion, and the deduction rate was 12.0%, a year-on-year decrease of 0.9 pts.

The total amount of 2024Q2's three deduction fees was 0.64 billion, and the three deduction rate was 12.3%, a year-on-year decrease of 0.2 pts (note: R&D expenses not included).

Interim dividend: As of June 30, 2024, it is proposed to distribute a cash dividend of RMB 0.09 (tax included) per share, for a total of approximately RMB 0.2 billion, with a dividend ratio of approximately 40.3%.

Share repurchase: The company will cancel 15 million shares that have already been repurchased and reduce the company's registered capital accordingly. The number of shares to be cancelled accounts for 0.68% of the company's current total share capital, showing confidence.

Investment advice: The number of civil aviation passengers reached a new high during the summer season. According to CADAS data, on August 13, the 7-day average passenger volume of civil aviation was 2.16 million, an increase of 8% over the previous year, exceeding 29% in 2019; the average passenger occupancy rate was 88%, +5 pts year on year, which is basically the same as in '19. The average 7-day full fare (including oil) in the domestic civil aviation market was 967 yuan, down 11% year on year and 2% lower than in 2019. 1) Profit forecast: Considering the domestic macroeconomic background and the progress of international recovery, we slightly adjusted our 24-26 profit forecast to achieve net profit of 15.1, 22.5, and 3.10 billion yuan (the original forecast was 16.2, 24.1, and 3.16 billion), respectively. The corresponding EPS for 24-26 was 0.68, 1.02, and 1.40 yuan, respectively, and PE was 16, 11, and 8 times, respectively. 2) Since international routes have yet to resume, we use a 25-year profit forecast of 2.25 billion under normal conditions, giving 15 times PE in 25 years, corresponding to a target market value of 33.7 billion yuan and a target price of 15.2 yuan. The expected space is 36% higher than the current rate, and emphasizes the “strong push” rating.

Risk warning: The economy has declined sharply, oil prices have risen sharply, and the exchange rate has depreciated sharply.