Spring Airlines (601021): Q1 performance exceeded expectations and took the lead in turning a loss into a profit

國金證券 ·  04/27  · Researches

Brief performance review

On April 27, 2023, the company disclosed the 2022 annual report and the first quarter report of 2023. The company achieved revenue of 8.37 billion yuan in 2022, a decrease of 23% over the previous year; the net profit returned to the mother was -3.04 billion yuan, an increase of 3.1 billion yuan over the previous year. The loss amount was slightly higher than the estimated loss of performance announcement (-2.6 billion yuan to 2.35 billion yuan). 2023Q1 achieved revenue of 3.86 billion yuan, an increase of 64% over the previous year; it achieved net profit of 360 million yuan to its mother, turning a loss into a profit, exceeding market expectations.

Management analysis

Both supply and demand declined in 2022, and 2023Q1 recovered rapidly. The domestic epidemic was repeated in 2022, and the company ASK fell 27% year on year to only 69% in 2019; RPK fell 34% year on year to only 57% in 2019; passenger occupancy rate fell 8pct to 75%. Affected by the levy of fuel surcharges and the rise in international tickets, passenger kilometer revenue increased 17% throughout the year, and its domestic passenger kilometer revenue in China was only 3.6% lower than in 2019. With the rapid recovery of the aviation market, the 2023Q1 RPK quickly recovered to 96% in 2019, its domestic RPK recovered to 135% in 2019, the international RPK recovered to 24% in 2019, the regional RPK recovered to 31% in 2019, and the passenger occupancy rate recovered to 86.9%.

Demand recovered quickly, and 2023Q1's revenue per RPK unit increased 30% year over year.

Q1 With the restoration of turnover, unit costs improved month-on-month. In 2022, the company's fuel cost per unit rose 60%, compounded by ASK's year-on-year decline. Looking at the company's per-kilometer operating cost for the whole year, the company's operating cost per kilometer increased 40% year over year to 0.38 yuan. Furthermore, the devaluation of the RMB in 2022 also caused the company to record a net exchange loss of 126 million yuan, which affected profits. Entering 2023, the Q1 domestic aviation fuel factory price rose 27%, but due to the sharp improvement in turnover, the company's ASK cost increased only 7% year over year to 0.35 yuan, down 8% from the full year of 2022. Benefiting from a sharp increase in revenue, 2023Q1 gross margin was 12.6%, which was corrected year on year. The net profit returned to the mother turned a loss into a profit, exceeding market expectations.

The international recovery was fast, leading the growth rate of capacity in the medium term. With the implementation of “Class B Tube B” in early 2023, the domestic market is currently recovering well. The company's domestic capacity investment far exceeds that of 2019. At the same time, since international routes to Asia resumed faster than intercontinental routes, the recovery process of the company's international flights was also faster than that of the industry, and it is expected that the company will take the lead in making profits throughout the year. Looking at the medium term, the company plans a net increase of 31 aircraft in 2023-2025, with annual growth rates of 6%, 11%, and 7% respectively, which is higher than the industry average, and growth is outstanding. Along with the investment of capacity, it is expected that the company's revenue and profit scale will continue to expand in the medium term, showing the ability of low-cost airlines to expand rapidly.

Profit Forecasts, Valuations, and Ratings

Considering that the company will continue to introduce aircraft after 2024, maintain the 2023 net profit forecast of 1.88 billion yuan, raise the 2024 net profit forecast to 3.28 billion yuan (previously 28.20 billion yuan), and add the 2025 net profit forecast to the mother by 3.87 billion yuan. Maintain a “buy” rating.

Risk warning

The risk of demand recovery falling short of expectations, the risk of exchange rate fluctuations, the risk of rising oil prices, the risk of increased dilution, and the risk of safety accidents.

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