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　　We recently organized a non-deal roadshow (NDR) with TravelSky Technology’s management. During the event, management discussed the firm’s business recovery, revenue projections, salaries, equity incentive plans, and corporate governance.
　　Comments
　　AIT revenue to recover steadily in 2024; system integration business revenue to improve YoY. In February 2024, the firm’s bookings for domestic and international flights provided by domestic airlines, and international flights provided by overseas airlines recovered to 120%, 77%, and 55% of the levels over the same period in 2019, up 21ppt, 8ppt, and 11ppt compared with the recovery in December 2023.
　　The CAAC forecasts China's air passenger transport may rise about 11% YoY to 690mn in 2024, and the volume of international flights may recover to 80% of the pre-pandemic level at end-2024. Management expects its aviation information technology (AIT) business to benefit from the steady recovery of the civil aviation industry in 2024. System integration business revenue dipped YoY in 2023, and management expects it to increase in 2024.
　　Labor costs to remain stable. The company requires that total payroll should remain stable during recruitment of new employees, and should not increase faster than total profit. Management noted that the firm’s current average salary is below the IT sector average, and that reasonable pay benefits the firm’s long-term human capital strategy. In addition, we believe labor cost is also affected by the capitalization rate.
　　Dividend payout ratio and capex solid. The firm kept its dividend policy unchanged in 2023 (40% of parent company’s net profit). TravelSky is an innovative IT company, and the management believes that capex capability is necessary to take advantage of growth opportunities. The firm's capex reached Rmb1.2bn in 2023, and management expects it to stay at Rmb700-800mn. However, the construction of the Phase II industrial park in Shunyi, Beijing may lead to an increase in capex.
　　Equity incentive proceeding. The company proposed its Phase III share appreciation rights plan on December 28, 2023, which was not submitted to the extraordinary general meeting held on January 25, 2024.
　　Management believes that equity incentives are an important part of SOE reform, and can effectively motivate key employees. The firm will steadily promote equity incentives in 2024 in accordance with regulations.
　　Financials and valuation
　　We leave our 2024 and 2025 earnings forecasts unchanged at Rmb1,941mn and Rmb2,348mn. We maintain OUTPERFORM, and target price of HK$11.3, implying 15x 2024e P/E, offering 17% upside.
　　Risks
　　Disappointing civil aviation demand; costs increase more quickly than expected; large impairment provisions.