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中国东航(600115):机队低增速 不应低估公司国际线恢复速度

China Eastern Airlines (600115): The low growth rate of the fleet should not underestimate the recovery speed of the company's international flights

中金公司 ·  04/01  · Researches

2022 results are in line with company forecasts

The company announced its 2022 results: revenue of 46.111 billion yuan, a decrease of 31% over the previous year; Guimu's net loss was 37.386 billion yuan, an increase of 25.17 billion yuan over the previous year, falling within the scope of the company's previous performance forecast loss (loss of 360-39 billion yuan).

Due to repeated effects of the epidemic, supply and demand in 2022 were the lowest in nearly three years. ASK in 2022 was -40% year on year, about 64% in 2019; among them, ASK in China and international regions was -41% and 14% compared to the same period, compared to 54% and 4% in 2019, respectively. On the demand side, RPK in 2022 was -44% compared to 28% in 2019.

Passenger and freight revenue both increased year over year. The company's revenue for passenger kilometers in 2022 was 0.60 yuan, an increase of 13% over the previous year and an increase of 15% over 2019. We think the impact of fuel surcharges is mainly due to the levy of fuel surcharges. Revenue per tonnage of freight was 2.98 yuan, an increase of 22% over the previous year, about 2.3 times that of 2019, and remained high.

The cost of withholding oil per unit of ASK increased, and exchange losses and income tax expenses combined increased by nearly 8.3 billion yuan over the same period last year. The company's operating costs per ASK oil withholding increased 47% year on year in 2022, mainly due to reduced capacity; the depreciation of RMB against the US dollar in 2022 caused exchange losses of 2.69 billion yuan, an increase of 4.306 billion yuan over the previous year; income tax expenses - 254 million yuan, an increase of 3,975 million yuan over the previous year, mainly because the company confirmed deferred income tax assets without deductible losses of 39.162 billion yuan based on future profit forecasts.

The growth rate of the fleet remained stable in 2023-2024, the lowest growth rate since the three major aviation epidemics. According to the company's fleet introduction plan, the fleet reached 797/824 aircraft by the end of 2023/2024, with a year-on-year growth rate of 2.8% and 3.4%. We estimated an average fleet growth rate of 2.6% in 2019-2024, the lowest of the three major airlines.

Development trends

At the industry level, the mismatch between supply and demand lays the foundation for an upward cycle, prompting oil remittances to disrupt profits. Airlines' improved balance sheets and aggressive pricing strategies added to the upward cycle. At the company level, the main domestic base continues to recover and the international route capacity is flexibly arranged. We are optimistic that the company will continue to recover at an accelerated pace in the second quarter and that its profit center will increase. We believe that although Chinese airlines had the most capacity investment (ASK) in the North American market before the pandemic, the recovery of the company's international capacity has accelerated markedly recently through flexible capacity adjustments. We recommend paying attention to negative factors such as the mismatch between supply and demand in the industry, the extent to which the company's capacity has recovered, and the signs that oil prices have soared.

Profit forecasting and valuation

The year-to-date increase in fuel has exceeded expectations. We lowered the net profit of 62% and 56% of A/H shares in 2023 to 2.16/2.51 billion yuan. Considering the resumption of air travel, we introduced the 2024 A/H net profit of 17.994/17.89 billion yuan. The A/H target price was maintained at 6.8 RMB and 4.3 Hong Kong dollars. The valuation was switched to 2024, corresponding to 8.4x and 5.4x price-earnings ratios. The current stock price corresponds to 6.4x and 3.9x price-earnings ratios, corresponding to 32% and 39% upward space respectively, maintaining outperforming industry ratings.

risks

The epidemic has repeatedly exceeded expectations; the ban on fixed share restrictions has been lifted; the recovery of international routes has fallen short of expectations; oil prices have risen sharply; and the devaluation of the RMB has exceeded expectations.

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