Incident: The company released its 2024 three-quarter report. In terms of operating data, from January to September 2024, the company's domestic, international and regional passenger traffic volume was 11001.52 square meters, 1290.13 square meters, and 1.4825 million passengers, respectively, 114.27%, 84.11%, and 74.31% for the same period in 2019. Looking at the comparison of capacity supply and demand, from January to September 2024, the company's domestic, international, and regional ask/rpk were 118.59%/120.46%, 81.16%/80.84%, respectively, for the same period in 2019. 71.50%/73.17%; Looking at the occupancy rate, as of September 2024, the company's domestic, international and regional passenger occupancy rates were 85.98%, 84.46%, and 76.66%, respectively.

In terms of financial data, in Q1-Q3 of 2024, the company achieved cumulative operating income of 134.661 billion yuan, +12.7%, 116.8% of the same period in 2019 (116.665 billion yuan), exceeding the same period in 2019; realized net profit of 1.965 billion yuan, +48.86% YoY, or 48.19% of the same period in 2019 (4.078 billion yuan); achieved net profit without deduction of -0.579 billion yuan .

2024Q3, the strong release of business volume during the peak season led to year-on-year growth on the revenue side, and single-quarter revenue reached a new high during the year. On the revenue side, in Q1-Q3 of 2024, out of the company's revenue of 134.661 billion yuan, Q1/Q2/Q3 single quarter revenue was 44.601 billion yuan/40.189 billion yuan/49.871 billion yuan, respectively. Due to the strong release of demand during the 2024Q3 peak season, the company's business volume increased significantly. Although there was a year-on-year decline in ticket price levels due to factors such as current pressure on China's purchasing power and changes and adjustments in the travel consumption structure, the increase in business volume still drove the company's Q3 revenue to increase year-on-year and hit a new high during the year.

2024Q3, improved oil remittance prices relieved cost pressure and achieved profit in the first three quarters. On the cost side, in Q1-Q3 of 2024, the company achieved operating costs of 120.738 billion yuan, +13.52% compared to the same period in 2019; in Q1/Q2/Q3 in 2024, the company's single-quarter costs were 39.725 billion yuan/38.826 billion yuan/42.187 billion yuan, respectively. Due to the drop in oil prices in Q3, the increase in the company's cost side is mainly due to the increase in variable costs due to the increase in business volume. In Q1-Q3 2024, the company's gross margin was 10.34%, and there is still room for repair compared to the same period in 2019 (14.67%).

On the cost side, 2024Q1-Q3, the company's sales expense ratio, management expense ratio, R&D expense ratio, and financial expense ratio were 3.84%, 2.24%, 0.28%, and 3.18%, respectively, compared with -0.17pct, -0.06pct, -0.04pct, and -1.27pct for the same period in 2023. The RMB exchange rate rebounded slightly during the year, and the level of the company's financial expenses fell year-on-year.

2024Q1-Q3, the Group operates 913 aircraft. As the largest airline in Asia, the company continues to lead the industry in terms of capacity. As of the end of the reporting period, the Group operated a total of 913 aircraft. Among them, a total of 38 aircraft were introduced and 33 were withdrawn in 2024Q1-Q3. 2024H1, the company introduced mainly the A320 B737, B787, and ARJ21 aircraft, and withdrew mainly the A320, A330, B737, and EMB190.

Investment advice: We maintain our previous earnings forecasts. According to our forecast, the company is expected to achieve basic earnings per share of 0.03/0.22/0.37 yuan in 2024 25/26, corresponding PE of 180.87X/26.63X/16.24X, maintaining the “recommended” rating.

Risk warning: the risk that the recovery of international routes falls short of expectations, the risk of a sharp rise in crude oil prices, and the risk of RMB exchange rate fluctuations.