SPRING AIRLINES(601021)：2023 AND 1Q24 EARNINGS HIT NEW HIGH; RPK IMPRESSIVE-格隆汇

机构：中金公司
研究员：Qibin FENG/Xuejian ZHENG/Qikun WU/Xin YANG

2023 and 1Q24 results in line with our expectations
Spring Airlines announced its 2023 and 1Q24 results: In 2023, revenue was Rmb17.9bn, up 21% vs. 2019; net profit attributable to shareholders was Rmb2.26bn, vs. net loss of Rmb3.04bn in 2022 and Rmb1.84bn in 2019. In 1Q24, revenue was Rmb5.2bn and net profit attributable to shareholders was Rmb810mn. The firm’s 2023 and 1Q24 earnings hit record highs.
Pressure from oil prices increased in 2023; RPK rose notably. In 2023, the firm’s unit fuel cost rose 25% compared with 2019 (average ex- factory price of aviation kerosene up 38% compared with 2019) and unit cost increased 7% compared with 2019. However, the firm maintains flexible pricing policies and capacity allocation, and its revenue passenger kilometers (RPK) grew 13.8% compared with 2019, the highest among all listed airlines. In addition, the firm recognized only Rmb385mn of income tax expenses in its full-year income statement, boosting earnings.
Trends to watch
Upbeat on earnings growth potential driven by capacity expansion amid the impact of the COVID-19 pandemic. Despite the impact of the pandemic, the firm held 121 aircraft as of end-2023, up 30.1% from end- 2019 (vs. +7.8% for the total number of aircraft at six airlines). Despite the loss of foreign pilots during the COVID-19 outbreak, the company’s competitiveness still recovered quarter by quarter. In 2023, the utilization rate of aircraft was 8.50 hours (vs. 11.24 hours in 2019) and the available seat kilometers (ASK) was only 8.6% higher than in 2019. Looking ahead, we think the company still has more than 20% room for growth, and we are optimistic about the company’s earnings growth potential driven by rising capacity.
High PLF and higher aircraft utilization rate should partially offset unit cost pressure from rising oil prices. The firm’s unit non-fuel cost in 2023 stood at Rmb0.20, largely flat with that in 2019 (even if aircraft utilization rate has not fully recovered), as the firm improved its digital and intelligent management capabilities during the COVID-19 outbreak, reduced operating costs by optimizing flight dispatch, and improved production processes. We expect falling unit non-fuel cost to partially offset oil price pressure as aircraft utilization rate rises. Meanwhile, the firm’s per-aircraft fuel surcharges are much higher than those of its peers’ narrow-body aircraft thanks to its high passenger load factor (PLF), which can also offset the cost of rising oil prices to a greater extent.
Air route network became increasingly complete during the COVID- 19 outbreak; revenue structure improving. The firm increased investment in destinations such as Ningbo, Yangzhou, Jieyang, Lanzhou, and Shenyang during the COVID-19 outbreak, and added Xi’an, Chengdu, Nanchang, and Dalian as new base destinations. The proportion of destinations in provincial capitals and tier-2 cities with relatively high rankings increased, significantly optimizing the return on domestic routes. Meanwhile, we believe the resumption of international flights will also boost the firm’s overall earnings.
Financials and valuation
Due to weaker-than-expected industry demand during the slack season in March and elevated oil prices, we lower our 2024 and 2025 earnings forecast 11.1% and 4.3% to Rmb3.25bn and Rmb4.01bn. The stock is trading at 17.1x and 13.8x 2024e and 2025e P/E. We lower our target price 9.7% to Rmb76.0, implying 22.9x and 18.5x 2024e and 2025e P/E, offering 33.8% upside. Maintain OUTPERFORM.
Risks
Sharp rise in oil prices; slower-than-expected recovery of international flights; disappointing recovery of pilots. Ticker.