China Eastern Airlines Logistics released its report for the first quarter of 2024:1Q24 achieved revenue of 5.2 billion yuan/yoy +14%, and realized net profit of 589 million yuan/yoy -23%.

Low in the off-season, revenue bucked the trend. Although the company faced multiple pressures such as a year-on-year decrease in the number of freighters in the first quarter, a mistake in the implementation of Changxie, and a high base of spot freight prices in the same period in '23, the company continued to deepen cooperation with major customers and the rapid growth of integrated logistics solutions, and the company's revenue in the first quarter was 5.2 billion yuan/yoy +14%. By business, 1Q2024 air express transport/ground integrated service/integrated logistics solutions recorded revenue of 2 billion yuan/600 million yuan/2.6 billion yuan respectively, -17%/+7%/+64% year-on-year; gross margins were 16%/40%/11%, respectively, and -15pp/+9pp/ -6pp, respectively. On the cost side, 1Q2024's financial expenses increased by 80 million yuan year-on-year, or due to the 1Q devaluation of RMB; 1Q2024 sales expenses and management expenses improved compared to the same period last year, falling by 0.86% and 11.70%, respectively. At the same time, due to factors such as a reduction in financial subsidies, 1Q2024's other earnings decreased by 106 million yuan year on year. However, the company's income tax expenses for the first quarter decreased by 250 million yuan year on year, and net profit to mother decreased by 172 million yuan year on year to 589 million yuan/yoy -23% year on year.

With the rise in the tariff center, cyclical flexibility is still worth looking forward to. According to Cirium, on the remote intercontinental air cargo track, there are only two main operating models, the B747F/B777F, and there is no flexibility in the introduction of new production capacity. In the booming phase of the industry, it is estimated that a 5% increase in freight rates for all freighters will contribute an additional 2-3 billion dollars in incremental profit flexibility. The current trend in spot freight prices has surpassed the same period in 23 years, and we are optimistic about the continued release of profit potential of companies with rising freight rates in the future.

Profit forecast and investment advice: EPS is expected to be 1.86, 2.20, and 2.24 yuan/share for 24-26, respectively. Optimistic about the booming phase of the industry, rising freight rates will bring high profit potential to the company. Maintain the judgment that the company's reasonable value is 22.32 yuan/share, corresponding to the PE valuation 12 times over 24 years, and maintain the “buy” rating.

Risk warning: risk of policy fluctuations, risk of competition in overseas warehouses, risk of increased competition, etc.