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[Introduction] The civil aviation market continues to recover, and many listed companies report good performance

China Fund News reporter Li Shuchao and Zhang Ling

Since the beginning of this year, the continued recovery of the travel market has greatly boosted the performance of companies in the aviation and airport sector. Based on the disclosed semi-annual reports and performance forecasts, more than 60% of companies have reported good performance, and the net profit of many companies has doubled year-on-year.

Industry insiders said that with the continued steady growth of civil aviation transportation, the future performance growth of aviation and airport industry companies is also expected. After continuous adjustments, the current valuations of major companies are already at the bottom range, and it is recommended to pay attention to related investment opportunities.

The civil aviation market continues to recover

Major indicators showed significant growth

Since the beginning of this year, civil aviation transport production has returned to natural growth. Relying on the super-large domestic demand market, the domestic aviation market has achieved steady and rapid growth. Civil aviation transport production has remained stable overall and has shown five notable characteristics.

First, civil aviation transport production remained stable overall, with domestic and international scales exceeding the same period in 2019. In the first half of the year, the industry completed a total transport turnover of 70.3 billion ton-kilometers, a year-on-year increase of 32.2% and an increase of 11.9% over the same period in 2019.

Second, civil aviation passenger transport production has grown steadily and rapidly, with more than 80% of international routes restored. In the first half of the year, the industry completed a total passenger volume of 350 million, a year-on-year increase of 23.5% and an increase of 9.0% over the same period in 2019.

Third, civil aviation cargo demand remained high, and demand for international routes remained strong. In the first half of the year, the industry completed a total cargo and mail transportation volume of 4.174 million tons, a year-on-year increase of 27.4% and an increase of 18.7% over the same period in 2019.

Fourth, flight efficiency indicators have significantly improved, and the gap has narrowed significantly compared with 2019. For example, the daily utilization rate of civil aviation aircraft in the first half of the year was 8.7 hours, 0.9 hours higher than the same period last year, and only 0.6 hours lower than the same period in 2019.

Fifth, airport production maintained a good momentum, with passenger and cargo throughput exceeding the same period in 2019. In the first half of the year, the national transport airports completed a total passenger throughput, cargo and mail throughput, and take-off and landing flights of 700 million, 9.417 million tons, and 6.05 million flights, respectively, up 21.0%, 24.1%, and 8.2% year-on-year, and up 6.7%, 18.2%, and 6.8% over the same period in 2019, respectively.

"The civil aviation industry has now completely recovered from the impact of the epidemic." Xu Ke, chief transportation analyst at GF Securities, believes that despite the disturbances caused by weather and other factors during the period, the civil aviation industry as a whole has maintained a steady recovery, with domestic demand continuing to show its resilience and growth, becoming an important driving force for the development of my country's civil aviation.

Yan Hai, chief analyst of transportation at Shenwan Hongyuan Research Institute, said that in the first half of 2024, the average daily passenger flow in the domestic market will remain at a high level, with an increase compared with 2019 and 2023. There is a clear trend of diversification and sinking of tourist travel destinations, and private travel has become the dominant demand. The tourism supply in the sinking market is constantly improving, stimulating incremental travel demand. The price increase of related routes in first-tier and new first-tier cities is weaker than that of sinking routes. At the same time, the passenger flow of routes between first-tier and new first-tier cities and fourth- and fifth-tier cities has increased significantly.

Shen Xiaofeng, deputy director of Huatai Securities Research Institute and chief researcher of the transportation industry, said that in terms of passenger transport, the current demand for private travel is relatively strong, including the Spring Festival and May Day holiday, and the performance of civil aviation passenger transport is good; however, in the off-season, public and business travel is under pressure, and civil aviation passenger demand still needs to be further restored. In terms of freight, benefiting from the vigorous development of cross-border e-commerce, it has brought incremental demand for air freight, driving the track to record a high level of prosperity.

Many companies reported good results

Future growth is expected

Judging from the performance of listed companies, Wind data shows that as of August 26, three companies in the aviation and airport fields disclosed financial reports, namely Juneyao Airlines, Shanghai Airport and Shenzhen Airport. Their revenue in the first half of the year increased by 17.41%, 24.55% and 15.60% year-on-year respectively; their net profit increased by 508.88%, 515.02% and 416.31% year-on-year respectively.

According to the previously disclosed performance forecast, more than 60% of airport airlines have expected good performance (including expected growth and loss-making), in addition to the aforementioned companies, there are also China Express Airlines, Baiyun Airport, Spring Airlines, etc. In addition, the losses of the three major airlines, Air China, China Eastern Airlines and China Southern Airlines, have also narrowed significantly year-on-year.

Xu Li believes that in the first half of this year, with international routes not yet fully restored and oil prices and exchange rates relatively poor, the profits of listed airlines continued to improve year-on-year. At the same time, the passenger and cargo throughput of domestic airports exceeded that of 2019. Benefiting from the rapid growth of air transport demand such as cross-border e-commerce, the cargo throughput of the four major airports in Beijing-Tianjin-Hebei, Yangtze River Delta, Guangdong-Hong Kong-Macao Greater Bay Area, and Chengdu-Chongqing all achieved double-digit growth year-on-year.

"In the first half of this year, airlines whose routes are closer to tourism demand and air cargo companies are expected to perform more impressively; airports have benefited from the increase in traffic and their profits have steadily increased. However, due to the performance of the duty-free business, the overall performance may still be lower than before the epidemic," said Shen Xiaofeng.

Looking ahead, Xu Ke believes that on the one hand, passenger demand has entered the right track of growth and will continue to grow with domestic demand in the future. On the other hand, my country's consumer goods exports have strong potential, and with the continued efforts of cross-border e-commerce platforms such as Temu, intercontinental air cargo demand may still be able to maintain a medium-to-high double-digit year-on-year growth rate in the next 3 to 5 years.

In addition, according to the forecast of the civil aviation industry's transportation market trend in the second half of 2024 by the Civil Aviation Administration of China, the civil aviation transportation market is expected to maintain a steady growth trend. The domestic passenger market will continue to grow naturally, and there will still be fluctuations between the off-season and peak seasons. The international passenger market will further recover, and the demand for air cargo and mail transportation will be generally stable. The industry's efficiency and benefit indicators will continue to rebound slightly. The main indicators of civil aviation transportation production throughout the year will exceed the full-year level of 2019, reaching an annual historical high.

Pay attention to bottom layout opportunities

Waiting for the cycle to reverse

At this point in time, respondents are generally optimistic about investment opportunities in the transportation industry, especially in the airport and aviation sectors.

Xu Li said frankly that the aviation industry is a typical cyclical industry. After three years of low demand from 2020 to 2022, on the one hand, major listed companies have a strong demand for balance sheet repair. On the other hand, under the guidance of the "14th Five-Year Plan", the supply side of the industry is facing a rare strong supply constraint in the past 20 years. From 2019 to 2023, the scale of passenger aircraft in the industry has increased by 10.7%, with an average annual growth rate of less than 3%. In addition, the production and delivery rhythm of aircraft of the two major main manufacturers, Boeing and Airbus, is still affected by factors such as the supply chain and has not yet returned to the 2019 level. The big cycle foundation of the aviation industry remains solid.

"With the continued growth of economic scale and potential travel demand, the implicit supply and demand gap in the industry is constantly accumulating. We are optimistic about the elasticity of airline performance during the upward cycle. After continuous adjustments, the valuations of major companies have reached the bottom range. We recommend bottom layout and wait for the cycle to reverse." Xu Li said.

Yan Hai also believes that airlines are still in the stage of gradual performance recovery. The current capital market is still waiting for multiple catalytic factors such as the recovery of international routes, improvement in travel demand, certainty of slowing aircraft supply, and changes in oil and exchange rates. The market currently focuses on airlines with good cost control capabilities and whose performance is expected to be released with high certainty in the short term.

"Looking ahead to subsequent investment opportunities, international routes in the aviation market are still recovering, and domestic market supply and demand are expected to improve in the future. The slow recovery of the aviation supply chain further strengthens the logic of supply slowdown. As travel demand becomes more normalized, the aviation industry's prosperity is expected to continue to pick up, driving the sector up." Yan Hai said.

As for the airport sector, Xu Ke further stated that the nature of first-tier and some core city airports as high-end traffic platforms has not changed due to the impact of the epidemic, and their natural monopoly position and long-term passenger flow growth space have not changed. In the short term, the continued recovery of passenger flow and the demand for air cargo driven by cross-border e-commerce will help airport performance to continue to recover. In the medium and long term, after consumer demand picks up, the elasticity of airport non-aviation business is still worth looking forward to.

Editor: Captain

Review: Chen Mo

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