Shenzhen Airport announced 3Q24 results: revenue of 1.215 billion yuan, up 10.9% year on month, up 8.2% month on month; net profit to mother was 0.153 billion yuan, down 30.3% year on month, up 91.4% month on month. In the first three quarters, the company achieved revenue of 3.465 billion yuan, an increase of 13.9%; net profit to mother was 0.327 billion yuan, an increase of 99.4%. The company's net profit for 3Q24 was in line with the performance forecast (0.128-0.182 billion yuan). The year-on-year decline was mainly due to the 3Q23 recording of 0.209 billion in asset disposal income and 0.073 billion in other income. We believe that the company is currently in the satellite office's production capacity expansion stage. Benefiting from the economic development of the Greater Bay Area in the hinterland and the opening of the Shenzhen-China Corridor, it is expected to drive a continuous increase in traffic and the share of international flights and further recovery in net profit. Maintain “buy-in.”

Traffic performance during the peak season was good, driving revenue to a new high in a single quarter

Traffic at Shenzhen Airport increased significantly in 3Q24 due to the peak season of civil aviation and the increase in the opening of the Shenzhen-China Corridor. Passenger throughput was 15.85 million passengers, up 14.9%/14.8% year over year; it has surpassed 17.3% in the same period in 2019; its domestic routes were 14.43 million, up 11.3%/14.7% year over year, surpassing 21.1% in the same period in '19; and 1.42 million for international+ regional routes, recovering to 89.7% in the same period in '19. In addition, 3Q24 cargo and mail throughput was 0.48 million tons, an increase of 17.0% over the same period. The improvement in traffic may have contributed to the company's main aviation business, value addition, logistics, etc., resulting in 3Q24 recording revenue of 1.215 billion, an increase of 8.2% over the previous year and an increase of 10.9% over the previous year. Looking ahead, we believe that the company's satellite hall is still in the phase of climbing capacity, and traffic will continue to grow at a relatively rapid pace.

Cost control is excellent. 3Q24 profit continues to approach the same period in '19, the company's 3Q24 operating costs fell 3.7% year on year to 0.933 billion, increasing gross margin by 11.6 pct to 23.2% year on year, and gross profit increasing by 122.7% to 0.282 billion year on year. However, due to 3Q23's confirmed housing compensation revenue of 0.209 billion yuan and other income of 0.073 billion, 3Q24's net profit fell by 30.3% year on year. However, if these two effects were deducted, 3Q23's profit before tax was only break-even. 3Q24's net profit to mother was 0.153 billion billion yuan, a significant increase over the previous year. At the same time, looking at vS3q19, although the company is still digesting the incremental costs brought about by the satellite office, net profit from 3Q24 fell 11.4% compared to the same period in '19, but the gap narrowed further (2Q24 was a 53.7% decrease). We believe that the company's profits are expected to continue to recover, driven by increased traffic and operating leverage.

Adjust the target price to $8.50 to maintain “buy”

Considering the strong demand for aviation during the 3Q peak season and the increase provided by the opening of the Shenzhen-China channel, we slightly raised the company's traffic forecast and predicted 24E-26E net profit to be 0.418/0.641/0.83 billion (previous value 0.396/0.632/0.796 billion). Based on the DCF discount method, the target price is 8.50 yuan (WACC 9.2%, sustainable growth rate 2.0%, previous target price 8.10 yuan). In addition, the company has no major capital expenses in the short term, and plans to raise the dividend rate promise for 23-25 to 45%. Previously, the promise was 30%. This move is expected to increase dividend attractiveness. Of these, the dividend rate for 23 has reached 52%. Maintain “buy-in.”

Risk warning: Economic growth is slowing down, civil aviation demand recovery falls short of expectations, and international flight development falls short of expectations.