EASTERN AIR LOGISTICS(601156)：2022 RESULTS IN LINE;WATCH OPPORTUNITIES FOR GROWTH IN COMPREHENSIVE LOGISTICS SERVICES

　　2022 results in line with our market expectations
　　Eastern Air Logistics （EAL） announced 2022 results: Revenue rose 5.6% YoY to Rmb23.47bn, gross profit grew 5.4% YoY to Rmb6.50bn, and attributable net profit edged up 0.3% YoY to Rmb3.64bn. The firm’s 2022 results were in line with our market expectations. In 4Q22, revenue fell 18.7% YoY （down 4.2% QoQ） to Rmb5.80bn, gross profit declined 43.0% YoY （down 27.0% QoQ） to Rmb1.22bn, and attributable net profit dropped 42.3% YoY （down 15.4% QoQ） to Rmb694mn. We attribute the declines to falling freight rates weighing on earnings.
　　By business, profit of air-express delivery services remained under pressure due to weakening beta; solid earnings from comprehensive logistics services. In 4Q22, the firm’s revenue from air-express delivery services, comprehensive logistics services, and ground services totaled Rmb2.95bn （down 49.0% YoY）， Rmb2.24bn （down 3.6% YoY）， and Rmb609.80mn （down 10.3% YoY）。 The gross profits of these businesses were Rmb792.20mn （up 11.9% YoY）， Rmb399.80mn （up 47.0% YoY）， and Rmb20.85mn （down 58.4% YoY）。
　　Industry-wide freight volume and rates under pressure in 2H22.The Civil Aviation Administration of China （CAAC） industry-wide freight volume and Shanghai Pudong Outbound Air Freight Index were down 16% and 27% YoY. In 2H22, EAL’s cargo and mail transportation tonne-kilometers fell 2.8% YoY to 3.01bn tonne-kilometers. Revenue tonne-kilometers rose 2.0% YoY to Rmb3.52.
　　We believe the growth of emerging businesses partially offset the decline in the traditional air-express delivery services. For example, freight volume of cross-border e-commerce and imports of fresh food products rose 70% and 109% YoY. Business volume of cargo stations fell 17% YoY, and unit revenue rose 8% YoY.
　　Trends to watch
　　Airfreight rates at low levels; watch marginal improvement in freight demand from emerging sectors such as e-commerce. In 1Q23, Shanghai Pudong outbound air freight index fell 38.7% YoY from 1Q22, and dropped 17.2% QoQ from 4Q22.
　　On the supply side, international air transport capacity has recovered to 98.2% of the 2019 level （according to IATA data in February 2023） as the shipping capacity of passenger planes has gradually increased. On the demand side, we see uncertainties over international trade in 2023. We note that airfreight demand grew in the near term in late March due to the peak season for e-commerce in overseas markets for Easter.
　　We remain upbeat on growth opportunities arising from the firm's door-to-door delivery capability, strong presence in niche markets. The firm continued to strengthen core resources along its transport network. It has added two all-cargo planes on a net basis in 4Q22, and the number of registered all-cargo carriers reached 15. The firm continued to construct self-operated cargo stations, and expects to put into operation the Phase II project of No.3 cargo station in the west cargo area of Shanghai Pudong International Airport in 2024.
　　In recent years, the firm has stepped up efforts to increase the number of its direct customers and focus on subsectors such as high-tech products, consumer goods, pharmaceuticals, and special cargo. We believe the growth potential of its comprehensive logistics services will likely offset the impact of falling freight rates and stabilize its businesses amid the industry-wide beta downtrend.
　　Financials and valuation
　　Considering that freight volume and rates may remain under pressure in 2023, we lower our 2023 net profit forecast by 20.8% to Rmb2.65bn. We introduce our 2024 net profit forecast of Rmb3.11bn. The stock is trading at 9.1x 2023e and 7.7x 2024e P/E. We maintain OUTPERFORM but cut our TP by 7.9% to Rmb19.80, implying 11.9x 2023e and 10.1x 2024e P/E with 31.0% upside, due to the aforementioned negatives, but we are upbeat on the firm’s growth potential in comprehensive logistics services.
　　Risks
　　Imports and exports lower than expected; economic downturn at home and abroad; sharp declines in industry-wide freight rates.
【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。

   【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。