Investment Rating - The report maintains a "Recommended" rating for the company, indicating a positive outlook based on its strong competitive position in the aerospace defense sector [4][6]. Core Insights - The company reported a revenue of 146.3 billion yuan for the first half of 2025, a year-over-year decline of 32.4%. The net profit attributable to shareholders was 11.4 billion yuan, down 29.8% year-over-year, which aligns with expectations [1]. - The second quarter of 2025 saw a revenue of 87.9 billion yuan, a decrease of 27.5% year-over-year, with a net profit of 7.1 billion yuan, down 21.8% year-over-year. Despite these declines, the company's profitability remained stable, with a net profit margin increase of 0.5 percentage points to 8.0% in Q2 2025 [1][2]. - The company successfully raised 4 billion yuan through a private placement to support the development of its aviation weaponry and equipment, enhancing its position in the modern aerospace industry [2][4]. Financial Performance Summary - For the first half of 2025, the company experienced a significant drop in revenue and net profit, with a gross margin of 12.3%, down 0.3 percentage points year-over-year. However, the net profit margin improved to 7.7%, reflecting effective cost management [1][3]. - The company’s operating cash flow improved significantly, with a net cash flow from operating activities of 30.9 billion yuan in the first half of 2025, compared to a negative cash flow of 58.9 billion yuan in the same period of 2024 [3]. - The company’s contract liabilities increased by 113% year-over-year, indicating a strong order backlog and future revenue potential [3]. Earnings Forecast - The company is projected to achieve net profits of 34.2 billion yuan, 40.63 billion yuan, and 47.89 billion yuan for the years 2025, 2026, and 2027, respectively. The corresponding price-to-earnings ratios are estimated at 53x, 45x, and 38x [4][5].

Core Viewpoint - The specific date for the closure of Hainan Free Trade Port has been confirmed as December 18, 2025, leading to a surge in local stocks, particularly Hainan Airlines, which saw a temporary stock price increase before a subsequent decline [2][3][4]. Company Summary - Hainan Airlines has been preparing to leverage opportunities from the Hainan Free Trade Port, focusing on aviation engine maintenance projects and infrastructure investments since the initiation of the free trade port construction [2][4]. - The company aims to expand its revenue streams by developing a composite route network that includes "domestic express + international transfer" and enhancing its aviation ancillary services [4][5]. - Hainan Airlines has recently opened and restored several international routes, including those to Hong Kong, Macau, Singapore, and London, while also increasing the frequency of domestic routes [4]. Industry Summary - The closure of Hainan Free Trade Port is expected to create significant development opportunities in sectors such as airports, tourism, and retail due to the implementation of liberalized policies [3]. - The free trade port will operate under a unique customs supervision model, allowing for freer movement of goods and services within the island while maintaining stricter controls with the mainland [3]. Financial Performance - Hainan Airlines has experienced significant fluctuations in its financial performance, with a net profit loss exceeding 64 billion yuan in 2020, followed by a recovery in 2021, but again reporting a loss of over 20 billion yuan in 2022 [5]. - In 2023, the company reported a net profit of 311 million yuan, but projected a net loss of 921 million yuan for 2024, indicating ongoing financial challenges despite the anticipated benefits from the free trade port [5]. - The company has also announced plans to acquire 100% of Hainan Tianyu Flight Training Co., Ltd. for 799 million yuan, which has raised questions regarding the financial implications and potential risks associated with this acquisition [6].