\u3000\u3 Jointo Energy Investment Co.Ltd.Hebei(000600) 029 China Southern Airlines Company Limited(600029) )
Event:
China Southern Airlines Company Limited(600029) issue annual report for 2021
In terms of business, the company transported 985047 million passengers / yoy + 1.70% in 2021, equivalent to 64.96% in 2019; Ask and RPK decreased by 0.37% and 0.66% respectively year-on-year in 2020, equivalent to 62.18% and 53.50% in 2019 respectively; The occupancy rate was 71.25% / yoy-0.21pct, a year-on-year decrease of 11.56pct in 2019.
Among them, 4q2021 company transported 198205 million passengers / yoy-39.15%, reaching 52.14% of the level in the same period in 2019; Ask and RPK decreased by 32.36% and 38.95% respectively year-on-year in 2020, reaching 53.14% and 42.96% in the same period in 2019; The occupancy rate was 66.46% / yoy-7.18 PCT, down 15.75 PCT year-on-year in 2019.
In terms of finance, the company achieved an operating revenue of 101644 billion yuan / yoy + 9.81% in 2021, 65.86% of the same period in 2019; The net profit attributable to the parent company was -12.103 billion yuan / yoy-11.63%, deducting the net profit not attributable to the parent company was -12.63 billion yuan / yoy-8.34%, a year-on-year decrease of 556.54% and 747.36% respectively in 2019.
Among them, 4q2021 achieved an operating revenue of 23.149 billion yuan / yoy-14.93%, up from 61.47% in the same period in 2019; The net profit attributable to the parent company was -5.984 billion yuan / yoy-77.09%, and the net profit not attributable to the parent company was -6.180 billion yuan / yoy-60.85%, a year-on-year decrease of 319.34% and 274.55% respectively.
Key investment points:
The epidemic rebounded and the recovery slowed down. The seat revenue rose, and the annual revenue increased slightly by 9.81%
In terms of passenger transport, benefiting from the improvement of China’s epidemic prevention and control situation in the second quarter of 2021, China’s air passenger transport market ushered in a short recovery, while the local epidemic spread in the third quarter, affecting the demand in the peak summer transportation season. In the fourth quarter, the impact of the local epidemic continued, and the company’s operating revenue decreased significantly year-on-year. Ask was only about 50% of the same period in 2019. However, driven by the recovery of Chinese business, China Southern Airlines’ annual rasK reached 0.35 yuan / yoy + 7.32%, equivalent to 87.54% in 2019.
In terms of freight transportation, the strong demand for air freight in 2021 led to the rise of freight rates. The company actively grasped the market opportunity and realized the revenue of freight and cargo mail of 19.887 billion yuan, an increase of 3.394 billion yuan compared with 2020, a year-on-year increase of 20.58%. The company achieved a gross profit of -2.585 billion yuan / yoy-10.38% in the whole year, including 4q2021 gross profit of -3.332 billion yuan, which is the lowest since the covid-19 epidemic.
Rising oil prices dragged down costs and the contribution of exchange earnings decreased
In terms of cost, with the continuous rise of international oil prices, the average oil distribution in 2021 increased by about 64% year-on-year compared with 2020, driving the company’s aviation fuel cost to increase by 6.708 billion yuan year-on-year. At the same time, due to the resumption of the collection of Civil Aviation Development Fund and the policy of halving the collection of social security in this period, the company’s oil deduction cost increased slightly by 3.44% year-on-year, and the oil deduction cask was about 0.37 yuan / yoy + 3.86%. On the expense side, due to the weakening of RMB appreciation in 2021, the company realized a net exchange gain of 1.575 billion yuan in 2021, a year-on-year decrease of 1.91 billion yuan in 2020. After combined with interest expense, capitalized interest expense and interest income, the annual financial expense of the company is 4.025 billion yuan / yoy + 34.48%.
The fundamentals are at the bottom of the large cycle, and the medium and long-term starting point may start from this year
Since the third quarter of 2021, the market is expected to drive the sector repair first, but the fundamentals of the aviation industry are still at the bottom of the large cycle. Due to the strong infectivity of the mutant virus Omicron, the epidemic situation in China was sporadic or normal in the first half of 2022. Considering the reality of China’s per capita medical resources and immune barrier, we expect to wait until the third quarter before looking forward to the issues related to opening up. We are confident that travel will return to normal in the future, but the impact and duration of the epidemic have repeatedly exceeded expectations.
With the announcement of the New Coronavirus treatment plan (trial version ninth), China’s epidemic has entered the second half, and this year will usher in the long-term starting point of the aviation industry. But the turning point still needs to be patient. In the current round of large cycle caused by covid-19 epidemic, aviation stocks have two logics: Valuation repair and supply-demand elasticity. As the largest aviation company in Asia, the company sits in the double hub of Beijing and Guangzhou. At present, affected by the rebound of local epidemic and aviation accidents, the prosperity of the industry is at a low level. When the upward stage of the cycle comes, the company is expected to fully benefit.
Profit forecast and investment rating: Based on prudence, the impact on the company’s performance and share capital will not be considered until the final completion of the additional issuance. It is estimated that the company’s revenue from 2022 to 2024 will be 107899 billion yuan, 147057 billion yuan and 176103 billion yuan respectively, and the net profit attributable to the parent company will be -10.479 billion yuan, 4.510 billion yuan and 10.086 billion yuan respectively, corresponding to PE of -10.50 times, 24.39 times and 10.91 times respectively. Considering that the fundamentals of the aviation industry are at the bottom of the large cycle, the company will fully benefit from the arrival of the upward stage of the future industry cycle and maintain the “overweight” rating.
Risk tips: (1) permanent loss risk: Bankruptcy caused by cash flow fracture and passive substantial dilution of shares caused by huge additional issuance at the bottom; (2) Periodic impact risk: at the macro level, the economy fluctuates greatly, the epidemic breaks out again, and major natural disasters, vaccination and related drug research and development are blocked; In terms of industry, major policy changes, aviation accidents and intensified industry competition.
