Incidents:
China Eastern Airlines Releases 2022 Annual Report
In terms of business, the company carried a total of 42,5105,000 passengers/yoy -46.26% in 2022, equivalent to 32.63% in 2019; ASK and RPK fell 40.13% and 43.67%, respectively, equivalent to 35.60% and 27.63% in 2019; the passenger occupancy rate was 63.70% /yoy-4.01pcts, down 18.36 pcts from 2019.
Among them, 4Q2022 the company transported 8,7263 million passengers/yoy -46.29%, reaching 27.02% of the same period in 2019; ASK and RPK fell 45.53% and 42.44%, respectively, to 29.01% and 23.34% in the same period in 2019; and the passenger occupancy rate was 64.64% /yoy+3.47pcts, down 15.71 pcts from the same period in 2019.
On the financial side, in 2022, the company achieved operating income of 46.111 billion yuan/yoy -31.31%, or 31.31% of 2019; net profit of the mother was 37.386 billion yuan, after deducting net profit of the non-return mother - 37.953 billion yuan, an increase of 25.172 billion yuan and 24.412 billion yuan respectively from 2021, and a decrease of 40.581 billion yuan and 40,520 billion yuan respectively from 2019.
Among them, 4Q2022 achieved operating income of 10.261 billion yuan/yoy -29.84%, reaching 37.37% of the same period in 2019; net profit of the mother was 9.270 billion yuan, after deducting net profit of the non-return mother - 9.60 billion yuan, up 5.218 billion yuan and 4.727 billion yuan respectively from the same period in 2021, down 8.098 billion yuan and 8.274 billion yuan respectively from the same period in 2019.
Key points of investment:
The epidemic continues to impact civil aviation travel demand. The company's annual revenue fell by 21.016 billion yuan year-on-year. Affected by industry safety incidents and the spread of the epidemic in many places, civil aviation travel demand in 2022 fell to a low of nearly ten years. With the rapid increase in local cases of 4Q2022, the company's passenger traffic volume was only 27.02% in the same period in 2019. The company's annual revenue decreased by 21.016 billion yuan to 46,111 billion yuan/yoy -31.31% year on year, and ASK was less than 40% in the same period in 2019.
By segment, the company's passenger revenue was 35.04 billion yuan/yoy -35.30%; freight revenue was 7.770 billion yuan/yoy -6.49%. Affected by factors such as increased fuel surcharges and supply contraction, the company's RASK was 0.38 yuan/yoy +6.66%, and RRPK was 0.60 yuan/yoy +13.37%.
High oil prices are compounded by exchange losses, and the level of costs and expenses is under pressure
On the cost side, international oil prices fluctuated at a high level in 2022. Judging from the settlement price of Brent crude oil futures, its average annual price increased by about 40% compared to 2021, driving the company's fuel costs to increase by 1,637 billion yuan to 22.230 billion yuan/yoy +7.95%. However, due to reduced capacity investment, the company's annual operating costs were 74.599 billion yuan/yoy -6.80%. CASK and oil deflated CASK were 0.78 yuan/yoy +93.84% and 0.54 yuan/yoy +47.13%, respectively.
On the cost side, affected by the devaluation of the RMB, the company's exchange losses increased by 4.306 billion yuan to 2,687 million yuan/yoy +265.97% in 2022, causing financial expenses to increase by 4.464 billion yuan to 8.344 billion yuan/yoy +115.05%. Furthermore, the more conservative treatment of deferred income tax assets caused corporate income tax expenses to rise by 3,975 million yuan to -254 million yuan over the same period last year, but it also left more room for deductions for future profit stages.
Say goodbye to the downturn in the industry and welcome the aviation cycle
With the implementation of the “Class B tube” at the end of 2022 and the continuous optimization and adjustment of epidemic prevention and control measures, the civil aviation industry cycle began to rise. The new summer and autumn season of 2023 has begun, the upper limit of domestic flight volume recovery is gradually being opened, and the pace of recovery of international routes continues to accelerate. In the context of the off-season, short-term ticket prices in the industry are under some pressure. However, as the visibility of ticket reservations for the “May 1st” holiday gradually increases, market sentiment is expected to be further catalyzed. The foundation for this round of aviation's upturn is more solid than ever before, and for the first time, both supply and demand have been realized. In the next second and third quarters, along with the marginal improvement in the difference between supply and demand and the flexibility of ticket prices, the large-scale market cycle is expected to be interpreted ahead of time.
As one of the three major state-owned air transport groups in China, the company is steadily advancing the construction of air networks in key strategic markets. In recent years, the company has continuously accelerated the construction of a strategic gateway hub in Beijing and continued to consolidate the Shanghai main base market. As international and domestic flight volumes continue to recover, the company's price elasticity is expected to be fully demonstrated during the upward phase of the cycle, and a reversal in performance can be expected.
Profit forecasts and investment ratings: Considering that industry fundamentals have reached an inflection point since the epidemic prevention policy was adjusted at the end of 2022, we are optimistic about the price elasticity of the aviation industry in the upward phase of this cycle and adjust our performance expectations for the company. The company's revenue for 2023-2025 is estimated to be 109.852 billion yuan, 155.408 billion yuan, and 16.401 billion yuan respectively, and net profit of the mother is 3.348 billion yuan, 15.725 billion yuan, and 15.450 billion yuan respectively. The corresponding PE is 34.29 times, 7.30 times, and 7.43 times, respectively, which was raised to the “buy” rating.
Risk warning: (1) Risk of permanent loss: bankruptcy due to broken cash flow and large-scale issuance leading to large passive dilution of shares; (2) risk of phased shocks: at the macro level, large economic fluctuations, another outbreak of the epidemic, major natural disasters, vaccination and related drug research and development; on the industry side, major policy changes, aviation accidents, increased industry competition, etc.