Guotai Junan released a research report saying that demand for the double holiday was strong, and the post-holiday slump was in line with expectations. There was a steady recovery in the second half of October, and domestic volume prices still surpassed before the epidemic. The total net profit of the three major airlines in 2023Q3 was 43% higher than in 19Q3. In the face of high oil prices and international recovery, performance recovered beyond market expectations. When supply and demand resume, the rise in the airline's profit center will continue to exceed expectations. The profit performance of the 2024 Spring Festival travel season will continue to exceed expectations, which is expected to catalyze optimistic expectations. It is recommended to increase holdings and maintain the “increase in holdings” ratings of Air China, Juneyao Airlines, and China Airlines.
Guotai Junan's main views are as follows:
1. Aviation: The Q3 performance of the three major airlines far surpassed that before the pandemic
Demand for the double holiday was strong, and the post-holiday trough was in line with expectations. There was a steady recovery in the second half of October, and domestic volume prices still surpassed before the epidemic. At the end of October, the winter and spring seasons will be changed. We expect the total number of flights for the new season to be stable. Among them, the main route flight plans will increase while the third and fourth lines will be reduced. It is expected that November may have an impact on the normal season change, and the quality of the air network will be optimized in the medium to long term. It is expected that future flight volume will be capped, and the airline added that aircraft orders will not change airspace bottlenecks and fleet deceleration plans. The total net profit of the three major airlines in 2023Q3 was 43% higher than in 19Q3. In the face of high oil prices and international recovery, performance recovered beyond market expectations. When supply and demand resume, the rise in the airline's profit center will continue to exceed expectations. The profit performance of the 2024 Spring Festival travel season will continue to exceed expectations, which is expected to catalyze optimistic expectations. It is recommended to increase holdings and maintain the “increase in holdings” ratings of Air China, Juneyao Airlines, and China Airlines.
2. Oil transport: There are still super bull market options, and the proposed layout is based on broad logic
(1) Crude oil transportation: Recently, fears about geopolitical conflicts have improved, and US crude oil inventories have increased, oil prices have stabilized, and freight prices have stopped falling and rebounded. The Middle East-China VLCC-TCE rebounded to over $35,000 last week. The peak season depends on the pace of trade recovery, which suggests short-term uncertainty. (2) Transportation of refined oil products: MR freight rates for the New Zealand to Australia line fell slightly, the Atlantic line rebounded steadily, and TCE remained in the profit range of 20,000 to 30,000 US dollars. The Q3 performance of oil transportation companies fell with freight rates compared to Q2, but it is estimated that the actual rental level of leading companies was better than industry and market expectations, and the slowdown in the off-season helped reduce fuel consumption. We believe that trade restructuring will continue to deepen in the next two years, and the rigidity of tanker supply will be highlighted. It is recommended to avoid peak season games and lay out a cross-year logic. Maintain the “increased holdings” ratings of China Merchants Southern Petroleum, COSCO Marine Energy, and China Merchants Shipping.
3. Equity incentives for oil transport central enterprises reflect the industry's optimism about the rising oil transport boom
(1) China Merchants Shipping: In March 2023, it was the first to announce the equity incentive plan. Conditions for entry into force: The 2023-25 EOE is not less than 30%, the compound annual growth rate of operating income compared to 2021 is not less than 11.5%/8.5%/8.5%, and not lower than the 75th point of the target company. (2) COSCO Hyneng: The draft equity incentive plan was recently announced. Conditions for entry into force: 2024-26 EOE is not less than 22%/24%/26%, total profit is not less than 24.1%/24.3%/24.5% compared to 2022, and not lower than the 75th quorum of the target company. We believe that the requirement for total profit to continue to grow at a relatively rapid pace reflects management's self-pressure and further highlights the industry's confidence in the upward trend in oil business over the next few years.
4. Guojun's Delivery Strategy: Maintaining the ratings of aviation and oil transport increasing holdings.
(1) Aviation: It is not the logic of mismatch between supply and demand after the epidemic, and profit shortages, but rather the logic of the long supercycle of China Airlines. The central increase in ticket prices has begun. When supply and demand resume, it will welcome a rise in the profit center. The resilience and growth of aviation demand will exceed expectations, maintaining an increase in holdings. (2) Oil transportation: The restructuring of oil transport trade continues under anti-globalization. The rigidity of tanker supply will be highlighted in the next few years, and oil transport still has super bull market options. It suggests that the risk-return ratio is more attractive, and maintain an increase in holdings. (3) Express delivery: The growth rate of express delivery volume is stable after excluding the low base. It is recommended to observe changes in the competitive landscape. Focus on the long-term value of leaders and maintain Zhongtong Express's increased holdings rating.
5. Risk Reminder
Economic fluctuations, policies, geography, epidemics, oil prices and exchange rates, safety incidents, etc.