China Southern Airlines released its 2024 interim report on August 29, 2024:

In H1 2024, the company achieved a net loss of 1.228 billion yuan to mother, a decrease of 1.647 billion yuan compared to H1 in 2023, a net loss of 1.984 billion yuan in 2024 Q2, an increase of 1.007 billion yuan compared to Q2 in 2023; realized net loss of 3.464 billion yuan after deducting non-return to mother net loss of 0.496 billion yuan compared to H1 in 2023, and achieved net loss deducted from non-mother in Q2 2024 4.01 billion yuan, an increase of 2.213 billion yuan over Q2 2023.

In 2024 H1, the company accurately grasped hot market opportunities and made every effort to improve management quality and efficiency. The company accurately investigated opportunities such as the Spring Festival travel season, conference and exhibition, etc., and arranged ahead of time to ensure that capacity matches the market; made every effort to seek new moments and actively promote joint management at all times; established a differentiated airline ticket product system to continue to build a private operating position; promote customer management system construction, and establish a corporate customer base certification and classification system. The resumption of operations in the first half of the year achieved significant results. The specific results are as follows:

In 2024, supply was strictly controlled, and H1 aircraft was reduced by 1 net. As of 2024 H1, the company's fleet size was 907, including 889 airliners, a net decrease of 2 from the end of 2023, and 18 freighters, a net increase of 1 from the end of 2023.

In 2024, H1 ranked first among the three major airlines in terms of cumulative passenger occupancy rate. In 2024 H1, the cumulative number of available seat kilometers (ASK) and passenger turnover (RPK) of the company recovered to 106% in the same period in 2019, up 22% and 33% from the same period in 2023, respectively. The company's domestic routes ASK and RPK were 118% and 120% in the same period in 2019, up 5% and 16% from the same period in 2023; international routes ASK and RPK were 79% and 78% in the same period in 2019. The company's cumulative passenger occupancy rate was 83.09%, ranking first among the three major airlines, up 7.33 pct from 2023 H1 and 0.44 pct higher than 2019 H1.

In 2023, H1 unit costs fell 3.53% year over year, and overall ticket prices fell 12.50% year over year. In 2024 H1, the company's operating cost per ASK was 0.45 yuan, down 3.53% from 2023 H1, or 115% of 2019 H1.

The company's passenger kilometer revenue was 0.49 yuan, down 12.5% from 2023 and up 2.51% from the same period in 2019. China's domestic passenger kilometer revenue was 0.50 yuan, down 7.41% and 3.47% from the same period in 2023 and 2019, respectively, and 0.47 yuan, up 24.34% from the same period in 2019, down 28.79% from the same period in 2023. Regional passenger kilometer revenue was 0.77 yuan, up 2.67% from the same period in 2019 and 18.09% from the same period in 2023.

H1's performance in 2024 was affected by the depreciation of the RMB exchange rate. H1's net exchange loss in 2024 was RMB 0.456 billion. According to the company's disclosure, if other conditions remain unchanged, as of June 30, 2024, if the RMB exchange rate appreciates (or depreciates) by 1% against the US dollar, it will reduce (or increase) the company's net loss by RMB 0.322 billion.

Profit forecast and investment rating: Due to relaxed industry supply and declining overall ticket prices this year, we lowered our 2024-2026 performance forecast. The company's net profit for 2024-2026 is estimated to be 3.2/8.7/11.5 billion yuan (previous value: 6.1/14.6/16.1 billion yuan), respectively, and the corresponding P/E is 31.9X/11.8X/9.0X, respectively. Considering the rapid recovery of the company's operations in 2024, the three major carriers lead the H1 passenger occupancy level in 2024, maintaining the “buy” rating.

Risk warning events: macroeconomic downside risk, oil price increase risk, exchange rate fluctuation risk.