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中国东航(600115):亏损探底结束 扭亏为盈在即

China Eastern Airlines (600115): Loss bottoming out is over, turning a loss into a profit is imminent

中泰證券 ·  03/31  · Researches

China Eastern Airlines published its annual report on March 30, 2023:

In 2022, the company achieved operating income of 46.111 billion yuan, down 31.31% from 2021 and 61.85% from 2019; net profit of the mother was 37.386 billion yuan, after deducting net profit of the non-returned mother - 37.953 billion yuan, up losses of 25.172 billion yuan and 24.412 billion yuan respectively over 2021.

In Q4 2022, the company achieved operating income of 10.261 billion yuan, down 29.84% from Q4 2021, down 37.80% from Q3 2022, and achieved net profit of 9.270 billion yuan, down 128.78% from Q4 2021, up 1.17% from Q3 2022; net profit after deducting non-return to the mother was 9.60 billion yuan, down 97% from Q4 2021, down 1.02% from Q3 2022.

Under the turmoil of the epidemic, the company is operating at a low level, passenger transportation revenue has declined markedly, and demand for freight is still strong.

On the operational side, the growth rate of fleet introduction has slowed, and capacity investment and market demand have declined. By the end of 2022, the company had 775 airliners, up 3.06% from 2021. 34 aircraft were introduced throughout the year, 11 were withdrawn, and there was a net increase of 23 aircraft. In 2022, the company ASK and RPK fell 40.13% and 43.67% respectively from 2021, to 35.60% and 27.63% in 2019; the company's passenger occupancy rate was 63.70%, down 4.01 pct from 2021 and 18.36 pct from 2019.

On the revenue side, passenger transportation revenue has declined markedly, and demand for freight is still strong. In 2022, the company achieved passenger revenue of 35.004 billion yuan, a decrease of 35.30% and 68.26%, respectively, compared to 2021 and 2019. By region, domestic passenger revenue was 30.571 billion yuan, down 39.60% and 57.96% from 2021 and 2019 respectively; international passenger revenue was 4.185 billion yuan, up 30.86% from 2021 and down 87.65% from 2019; regional passenger revenue was 248 million yuan, down 16.22% and 93.27% from 2021 and 2019 respectively. Looking at passenger kilometer revenue, the company's domestic, international, and regional passenger kilometer revenue for the full year of 2022 (company disclosed caliber, including fuel surcharges and partner route revenue) was 0.549 yuan, 2.100 yuan, and 1.040 yuan respectively, up 7.86%, 17.45%, and 39.78% from 2021, respectively, and up 1.86%, 343.97%, and 39.78%, respectively, from 2019. In 2022, the company actively carried out passenger conversion and passenger aircraft belly cabin business. Cargo revenue was 7.770 billion yuan. Cargo revenue accounted for 16.85% of total operating revenue, down 6.49% from 2021, and up 103.08% from 2019.

On the cost side, rising oil prices and exchange rate fluctuations affect the company's operating performance. In 2022, the company's ASK oil deduction cost was 0.54 yuan, up 47% and 101% respectively from 2021 and 2019. Oil prices soared in 2022, but due to the sharp reduction in flight volume due to the pandemic, the company's fuel consumption fell. Taken together, the company's fuel cost in 2022 was 22.230 billion yuan, up 7.95% from 2021. The fuel cost per unit of ASK was 0.23 yuan, up 80% from 2021. Fluctuations in the RMB exchange rate in 2022 caused the company to lose 2,687 billion yuan in exchange in 2022.

With the start of the new aviation season, China Eastern Airlines' profit recovery is expected to accelerate. With the start of the new summer and autumn season in 2023, China Eastern Airlines has a clear advantage in interflight routes between first-tier cities. According to the flight plan for the summer and fall season of 2023, China Eastern Airlines first-tier cities had a 28.40% market share of flight plans, higher than Air China's 24.10% and China Southern Airlines' 23.26%. As for international routes, short-haul Asian routes such as Japan, South Korea, and Southeast Asia are currently the first to resume, while China Eastern Airlines has traditional advantages on routes between Japan, South Korea, and Southeast Asia. Taking the 2019 summer/autumn season as an example, China Eastern Airlines accounted for 27.8%, 29.9%, and 21.1% of the total times of China's airlines in Korea, Japan, and Thailand, respectively, ranking first among Chinese airlines. The company is expected to fully benefit from the first recovery in domestic aviation demand and the relatively rapid recovery of international short-haul routes.

Profit forecasting and investment ratings: Considering the determination of market demand recovery trends, the company's first-tier city interflights and East Asia and Southeast Asia route advantages, we expect the company's performance to bottom out. We forecast revenue of 114 billion yuan, 142 billion yuan, and 175.5 billion yuan respectively for 2023-2025, and net profit forecasts of 1.5 billion yuan, 7.5 billion yuan, and 14.8 billion yuan respectively. The corresponding P/E is 74.1X/15.3X/7.7X, respectively. Currently, the aviation industry is at the bottom of the industry cycle. After demand gradually recovers, the company will fully benefit and maintain its “buy” rating.

Risk warning events: macroeconomic downturn risk, risk of rising oil prices, risk of exchange rate fluctuations.

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