During the 2021Q4-2022Q1 period, the trend of growth stocks and value stocks was seriously separated. Why is this happening?
In addition to the excessive valuation of growth stocks, there is also a great correlation with the growing determination of domestic stable growth. As soon as 2022 entered, the central bank began to release water in early January, strengthening the logic of funds to speculate on the certainty of the profit expectations of value stocks. Among the many value stocks, the author noted that the recent performance of transportation companies is acceptable, and the stock prices of airlines have performed quite strongly.
The strong stock price of airlines is not unreasonable reasons, the central bank releases water to promote the vitality of all walks of life, once the industry prosperity improves, then because the frequency of business travel will increase, in addition, the increase in residents' income after the increase in consumption willingness, then due to the epidemic accumulation of traffic demand There is a possibility of outbreak.
In addition to the short-term demand stabilization, the recent favorable aviation policies have also surfaced.
On January 7, 2022, the Civil Aviation Administration of China, the National Development and Reform Commission, and the Ministry of Transport jointly issued the "14th Five-Year Plan for Civil Aviation Development", which sets the tone for the growth logic of civil aviation in the next four years, indicating that 2021-2022 is a recovery period and a savings period, and 2023-2025 is a growth period and a release period.
On 20 January 2022, the State Council issued the 14th Five-Year Plan for the Development of Tourism, which pointed out that inbound tourism promotion actions should be launched in a timely manner.
The implication of the two development plans may be that in 2022, the domestic cycle will continue while gradually opening the door, and in 2023, it will be ready to fully open the door to customers.
First, the domestic cycle
As early as the beginning of 2021, the Civil Aviation Administration of China predicted that passenger traffic could return to the top 90% of the epidemic in 2021, but the final data was far from the forecast.
By the end of 2021, China's civil aviation will have completed 85.7 billion tons of total turnover, passenger traffic and cargo and mail transportation in the whole year, 440 million passengers and 7.32 million tons, recovering to 66.3%, 66.8% and 97.2% respectively in 2019.
This year, Feng Zhenglin, director of the Civil Aviation Administration of China, once again gave a forecast, saying that in 2022, China's civil aviation will strive to complete the total turnover of 104 billion tons of transportation, the passenger traffic volume of 570 million person-times, and the cargo and mail transportation volume of 7.8 million tons, the overall recovery to about 85% of the pre-epidemic level; if the epidemic does not fluctuate repeatedly, strive to achieve the overall industry to reverse losses and increase profits.
Striving to achieve the industry's overall turnaround can be understood in this way.
Because of the general loss of domestic airlines in 2020, as of the first three quarters of 2021, ten domestic airlines have lost a total of 31.5 billion yuan, the fourth quarter of the operation is not good, 2020-2021 airlines continuous losses into a foregone conclusion, another year of loss will be ST.
Therefore, achieving profitability this year has become a major task at hand.
First of all, assuming that the epidemic situation is stable, in order to achieve the overall turnaround of the industry, if it is a large domestic cycle alone, it is necessary to increase the volume and price together.
Looking at the trend of the industry last year, the monthly trend of civil aviation passenger dispatch in 2021 is high and low, and the impact of the epidemic is obvious.
March-May, which was not affected by the epidemic, was the highest attendance rate of airlines in the whole year, and the passenger traffic during this period recovered to more than 90% of the same period in 2019, and the load factor recovered to 80%, of which domestic passenger traffic increased by 10.7% in April.
The number of Q3 and Q4 passengers and load factors affected by the epidemic have dropped significantly, and the rebound is also weak.
The trend of airline load factor and new local cases indicates that the recurrence of the epidemic has led to insufficient number of passengers.
Although the demand could not rise temporarily due to the impact of the epidemic at the beginning of this year, the logic of price increase has taken the lead.
Taking China Eastern Airlines as an example, it announced that from January 1, 2022, the full-price ticket of the Beijing-Shanghai Line will be raised to 1960 yuan, and if the demand picks up, the profitability of China Eastern Airlines will improve rapidly.
Based on price increases, the following assumptions are made about profit improvement.
In terms of costs, as of January 19, 2022, WTI crude oil futures are priced at $86.50 per barrel, an increase of about 10-15% compared to 2018. The recent RMB exchange rate is much stronger than in 2018, and the exchange rate can hedge against the bearishness of rising oil prices.
So assume that the 2022 cost base is consistent with 2018.
In terms of profitability, in 2018, China Eastern Airlines' Beijing-Shanghai line made a profit of 1.25 billion yuan, corresponding to a full fare of 1360 yuan, if the load factor was the same as in 2018, the full fare was 1960 yuan, the increase in the full fare was 10% higher than the average fare, and the annual profit of the Beijing-Shanghai line rose to 1.5 billion yuan, an increase of about 20%.
In addition, if demand really comes up this year, what about supply?
The supply of capacity is absolutely not a problem, because in the past, because international flights have been suppressed, so many airlines have transferred their international flight capacity to China, and domestic capacity has increased significantly, and once domestic demand breaks out, air capacity can be completed.
In summary, if there is no recurrence of the epidemic in 2022, with reference to the basic recovery of the load factor and passenger volume of various airlines in Q2 2021 to the level of 2019 and the action of raising ticket prices, as long as the demand picks up, the domestic large cycle logic will theoretically work.
Second, open up the expectation of the country
After talking about the logic of the domestic cycle, look a little farther, the medium-term dimension of the opening of the national door is expected to be in the second half of 2022 - 2023.
Although the vaccination rate has increased and the progress of special drug research and development has accelerated, the operation of overseas governments is basically to lie flat, that is, the epidemic is flu.
In terms of international flights, the international passenger traffic in 2019 was about 100 million, accounting for 20% of the total passenger traffic. After the outbreak of the epidemic, the "Five Ones" policy and strict epidemic prevention policy were implemented in China, and the number of domestic flights and passenger traffic by the end of September 2021 was about 5% and 2-3% of the normal period, respectively.
Today, this limited freedom has lasted for more than 2 years, and the domestic policy on international aviation has not yet been substantially relaxed.
From January 1 to 13, 2022, 74 circuit breaker measures were implemented in China, and 198 circuit breaker flights were carried out. The Omikeron variant spread rapidly overseas, the number of imported cases increased, and the number of flight circuit breakers rose immediately.
If the restrictions on international flights are gradually relaxed in 2022-2023, it is a real benefit to Air China, China Southern Airlines and China Eastern Airlines, the international operating income of these three companies accounts for about 30%, and the excess capacity is reintroduced into international flights, then it is likely to achieve profitability.
Finally, it comes to the selection of individual stocks.
If investors intervene in aviation stocks based on the expectation of opening up the country, they can choose Air China, China Southern Airlines and China Eastern Airlines, which have high capacity and performance flexibility will be much higher than Spring Airlines and Juneyao Airlines.
If investors are involved in aviation stocks based on the logic of the domestic cycle, then the optional is Spring Airlines and Juneyao Airlines, compared with the load factor of the five companies, Spring Airlines and Juneyao Airlines are higher than China Southern Airlines, Air China, China Airlines, China Eastern Airlines, these two companies rely on low fares, cost reduction strategies to profit, when the economy is not ideal, consumers' sensitivity to price increases.
There is also the fact that these two airlines basically have no overseas flight business, the focus of operation has always been on the domestic, and the problem of excess capacity is less than that of the three major airlines, so it is less affected by depreciation and amortization.
Conclusion
The compound annual growth rate of passenger traffic in 2019-2025 is expected to be only 5.9%, which is lower than the compound growth rate of 10.7% from 2015 to 2019.
Although airlines have a double recovery logic, the recovery trend in the next two years is highly certain, but the capacity and passenger traffic in the medium and long term expected growth rate is slow, short-term domestic large cycle logic is flawed, domestic uncertainties are quite numerous, if there is no policy to release water to escort, aviation short-term demand is difficult to say optimistic, in contrast, the opening of the national door is expected to be a matter of time, so if you intervene in aviation stocks, you need to have the ideological preparation held by the middle line.