According to the Zhitong Finance and Economics app, Sinolink Securities issued a research report stating that fundamentally, the transportation sector's prosperity is closely related to the macro environment. The prosperity of imports and exports stimulates port throughput and cross-border logistics demand. Consumer and real estate infrastructure investment support express delivery and ToB logistics demand. The recovery of travel demand drives airline, airport, and high-speed rail profitability. Currently, I have seen that the transportation sector's fundamentals are improving, under the boost of policy stimulating domestic demand confidence, I recommend two investment themes in the transportation sector: 1) The inflection point of supply and demand is decreasing, it is suggested to pay attention to the optional consumption aviation sector; 2) The outlook is positive, bullish on the recovery of domestic demand, recommended to focus on hazardous chemicals logistics, domestic freight aggregation, and direct-owned express delivery sectors.

Sinolink Securities' main points are as follows:

Aviation: It is expected that the supply will grow slowly and gradually reach a turning point in supply and demand.

Since 2024, the aviation industry's supply and demand relationship has continued to improve. The capacity utilization rate during peak seasons has exceeded the level of 2019, and this trend is expected to continue.

Supply side: Since 2020, airlines have slowed down the introduction of aircraft, and it is expected that by the end of 2024, the cumulative growth rate will only be 15% compared to 2019. Currently, the production capacity of Boeing and Airbus is lower than that of 2018-2019. The main engine manufacturer GE's output has decreased year-on-year, leading to a backlog of orders. It is expected that the speed of aircraft introduction in the future will still be in the low single digits.

Demand side: Currently, passenger traffic has exceeded that of 2019, with the entire industry's civil aviation passenger volume from January to October increasing by 11% compared to 2019, of which in October, the international passenger volume of domestic airlines was at 97% of 2019. Demand has naturally recovered and with the release of policies to stimulate consumption, it is expected that civil aviation passenger volume will maintain high single-digit growth. The future inflection point of supply and demand is expected to be achieved, with supply expected to grow by 3% year-on-year in 2025, and demand to grow by 8% year-on-year; cumulative supply growth compared to 2019 is 18%, while cumulative demand growth is 19%, and the capacity utilization rate will exceed that of 2019. Reviewing history, under optimized supply and demand, airline profits are expected to improve significantly, coupled with recent cost-side improvements due to oil price factors, it is expected that airline profits will further increase.

Logistics: Focus on the subdivision opportunities in the logistics sector.

Hazardous chemicals logistics: The approval process for hazardous chemicals logistics storage and transportation is relatively strict, with leading qualifications. Additionally, market share of the industry leaders continues to increase through mergers and acquisitions to enhance transportation and storage resources. The improvement in domestic demand will elevate the prosperity of corresponding chemical products. The profitability of distribution business relies mainly on rising chemical prices, while the increase in transportation business profit relies on the demand for chemicals. If domestic demand improves due to fiscal stimulus, with increased capacity utilization and inventory levels, the demand for hazardous chemicals logistics related businesses such as transportation, storage, distribution, is expected to increase.

Domestic shipping: Protected by policies, domestic shipping has relatively high entry barriers, with a good industry competitive landscape. The top three shipping companies account for about 80% of the transportation capacity. Goods transported in the domestic shipping industry include consumer goods, industrial products, and natural resources, which are related to the overall macroeconomy. An improvement in domestic demand will boost physical work volume, leading to increased transportation demand and significant potential for a rise in transportation rates, with a wide market space for market restructuring.

Direct express delivery: The direct express delivery sector has a good structure, with SF Holding occupying 64% of the express delivery market. In the high-end direct express delivery market, there is a duopoly structure with SF Holding and JD Logistics. Compared to traditional e-commerce express delivery companies, direct express delivery companies have a more diversified demand structure. In addition to express delivery services, SF Holding also includes standard shipping, cold chain, same-city delivery, supply chain, and international business. There is a positive outlook on the accelerated growth of commercial and mid-to-high-end consumer express delivery markets in the favorable economic cycle. Growth is expected in courier, cold chain, and other logistics services. JD Logistics focuses on integrated supply chain logistics services, continuously optimizing its logistics network over the years. By fully integrating with the Taobao and Tmall platforms, third-party business volume is expected to grow, achieving rapid profit growth through economies of scale and lean cost control.

Recommended portfolio:

Air China Limited (601111.SH,00753), China Southern Airlines (600029.SH,01055), Spring Airlines (601021.SH), Juneyao Airlines (603885.SH), Milkyway Chemical Supply Chain Service (603713.SH), Guangdong Great River Smarter Logistics (002930.SZ), Xingtoong share (603209.SH), Shenghang share (001205.SZ), Shanghai Zhonggu Logistics (603565.SH), S.F. Holding (002352.SZ,06936), jd.com Logistics (02618).

Risk warning

Risks include macroeconomic underperformance, significant oil price increases, and depreciation in the exchange rates of the Chinese Yuan.