The company released its 2023 annual report: 1) 2023: The company achieved operating income of 20.62 billion yuan, a year-on-year decrease of 12.1%, a year-on-year net profit of 2.49 billion yuan, a year-on-year decrease of 31.6%, after deducting net profit of 2.34 billion yuan, or -33.7% year-on-year. 2) 23Q4:

Operating income of 6.39 billion yuan, +10.1% year on year, net profit attributable to mother of $82 billion, +18.7% year on year, net profit after deducting non-return to mother of $81 million, +24.3% year on year. Non-net profit deducted from Q1-Q4 was $6.6, 4.8, 3.9, and 81 million, respectively.

By business sector: 1) Air express business: annual revenue of 9.117 billion yuan, 31.37% year on year, gross profit margin 24.58%, down 10.41 pct year on year; of these, Q4 revenue was 2.664 billion yuan, -9.82% year on year, gross profit margin 26.1%, and -0.7 pct year on year.

In 2023, the company completed a total cargo and mail transportation turnover of 6.824 billion tons/km, +18.80% year-on-year; cargo and mail transportation volume was 1.4451 million tons, +26.42% year-on-year. The annual freight rate of all freighters was 83.12%, down 0.77 percentage points from the previous year, and the passenger aircraft cargo business carrying rate was 33.49%, down 7.61 percentage points from the previous year. The average daily utilization time of all freighters was 12.56 hours, +12.85% year over year, of which the Q4 utilization rate reached 14.29 hours. By the end of '23, the company had 14 freighters, a net decrease of 1 compared to the end of '22. By the end of '23, the company had 17 scheduled freighter routes, including 15 from Shanghai and 2 from Shenzhen. 2) Integrated ground services: Annual revenue of 2,367 billion yuan, +0.55% year over year, gross profit margin 40.48%, up 21.97 pct year on year. Among them, Q4 revenue was 618 million, +1.37% YoY, gross profit margin 42.7%, +39.3pct YoY. The annual cargo and mail handling volume was 2.402,500 tons, +9.04% year-on-year. During the reporting period, the company completed a total of 2,032,100 tons of cargo and mail processing at Shanghai Pudong Airport and Hongqiao Airport, accounting for about 53.60% of the cargo and mail handling volume of Shanghai's two major airports. 3) Integrated logistics solutions: Annual revenue of 9.125 billion yuan, +16.74% year on year, gross profit margin 13.52%, down 4.54 pct year on year, of which Q4 revenue was 3.105 billion yuan, +38.89% year on year, gross profit margin 15.2%, and -2.7% year over year.

Cross-border e-commerce import and export orders of 53.49 million were completed throughout the year, +113.70% compared to the same period, the volume of cross-border e-commerce goods was +83.55%; the volume of customized logistics solutions was 26,158 tons, +9.84%; the import volume of fresh products was 21,600 tons, +105.22% compared to the same period; the number of direct charter flights to the place of origin was 1,072, +69.62% year over year.

Cost side: Annual cost of 16.18 billion yuan, -4.6% year on year; of which aviation fuel cost was 3.29 billion yuan, accounting for 20.3%, up 23.2% year on year; transportation service price was 3.63 billion yuan, accounting for 22.5%, or -53.3% year over year, mainly due to the gradual withdrawal of passenger goods during the reporting period, the transportation service price for passenger aircraft cargo business declined year on year; air freight cost was 4.47 billion yuan, accounting for 27.7%, +131.4% year over year. This was mainly due to an increase in integrated logistics solution business volume and an increase in shipping capacity outside procurement during the reporting period.

Core highlights: The cross-border “Four Little Dragons” are growing rapidly. They are optimistic that the company is the owner of core air transportation resources from China to Europe and the US, and the boom is quite flexible. In our previous report, we analyzed: 1) Since September 2023, behind the super-seasonal rise in freight rates, there has been a high increase in demand for cross-border e-commerce. 2) Under the platform's aggressive growth target, we estimate that the supply and demand structure will maintain the boom. Scenario-based estimation: Under the two demand-side scenarios, European and American export volume growth rates in '23 were 25% and 37%, respectively. Under two supply-side assumptions: unidirectional export capacity increased by 18% and 24%, respectively, and the increases were lower than the demand-side estimates. 3) TAC trends since this year confirm supply and demand judgments.

Investment advice: 1) Profit forecast: Based on recent market rate changes, we slightly adjusted our 24-25 profit forecast to achieve net profit of 33.8 billion yuan and 3.69 billion yuan (the original forecast was 3.13 billion yuan and 3.68 billion yuan), and also introduced an estimated profit of 3.99 billion yuan for 26, corresponding to EPS of 2.13, 2.32, and 2.51 yuan, respectively, and PE of 9, 8, and 7 times, respectively.

2) Investment advice: Demand for cross-border e-commerce is growing rapidly, and it is expected that capacity will be limited. The supply and demand structure of the industry will maintain its prosperity, and freight rates are expected to rise at the center. As the owner of core transportation resources in Europe and the US, China Eastern Airlines Logistics is expected to benefit the core.

Using a 10-fold valuation of the cyclical stock boom range, 10 times PE was given in 2025, corresponding to a target market value of 36.9 billion yuan and a target price of 23.2 yuan, which is expected to be 28% of the space compared to the current price. Maintain a “Recommended” rating.

Risk warning: Overseas policy risks, cross-border e-commerce demand falls short of expectations, and capacity increases exceed expectations.