20160120-高盛-Updating_estimates_on_traffic___FX__Beijing_Airport_still_our_top_pick_12页_449kb

China: Transportation - Airports Summary

Core Content

This document provides an equity research analysis of China's major airports, with a focus on Beijing Capital International Airport (BCIA) and Shanghai Pudong International Airport (SIAC). It outlines the current performance, policy developments, and future outlook for these airports, along with updated financial estimates and valuation analysis.

Main Points

• Traffic Growth: In 2015, China's five busiest airports recorded varying passenger growth rates. BCIA maintained its position as the world's second busiest airport, behind Atlanta (US). It is expected to grow at a 4% CAGR over 2016-19E, despite slower growth compared to SIAC (9% CAGR). BCIA's international traffic mix is expected to increase from 24% in 2014 to 28% in 2018E.

• Free Cash Flow (FCF): BCIA is projected to generate 11% FCF yield in 2016E, which is expected to rise further. This FCF is anticipated to drive higher earnings and support dividend growth, with the payout ratio expected to increase to 46% by 2017E.

• Valuation: BCIA is considered undervalued relative to global peers based on P/B vs. ROE and EV/EBITDA metrics. The 12-month target price (TP) for BCIA is HK$9.80, implying a 33% upside potential from its current price of HK$7.39. SIAC, on the other hand, is viewed as fairly valued with a TP of Rmb31.90.

• Policy Reforms: The Civil Aviation Development Fund rebate policy is becoming clearer, with BCIA, GZ, and Hainan airports expected to receive rebates in 2016. The new CAAC leadership is expected to bring more market-driven reforms, including airport slot allocation and charge reforms, as 80% of China's airports were loss-making in 2015.

• Retail and Non-Aero Growth: There is a potential liberalization of airport duty-free licenses which could introduce more competitive tendering and provide better revenue-sharing terms. Retail and restaurant contract renewals are expected to drive non-aero growth, offsetting the slowdown in advertising revenues.

• Capital Expenditure (Capex): SIAC faces significant capex due to the construction of its Phase III Satellite Terminal, which could lead to negative FCF in 2016E. BCIA, in contrast, is expected to benefit from positive FCF starting in 2016E.

• Risk and Reward: The risk-reward profile for BCIA remains favorable, with 33% upside potential against a 12% downside risk. SIAC is rated Neutral due to its capex and potential for lower growth compared to BCIA.

Key Information

• Traffic Volumes:

  • BCIA: 90 million passengers in 2015, with 4.4% growth in 2015 and 4.3% forecast for 2016E.
  • SIAC: 60 million passengers in 2015, with 16% growth and 10% forecast for 2016E.
  • International traffic growth for BCIA is expected to be 8% in 2016E.

• Financial Performance:

  • BCIA's 2016E net income is projected at Rmb1,853 million.
  • EPS for BCIA is expected to grow from 0.37 in 2015E to 0.43 in 2016E.
  • FCF yield for BCIA is expected to rise to 11% in 2016E.

• Valuation Metrics:

  • BCIA's 12-month TP is HK$9.80, implying a 1.9X 2016E P/B.
  • SIAC's 12-month TP is Rmb31.90, implying a 2.8X 2016E P/B.

• Risk Factors:

  • Uncertainty around airport fee subsidies and reforms.
  • Budget overruns at SIAC's Phase III Satellite Terminal.
  • Potential passenger diversion to a second airport in Beijing by 2020E.

• Market Outlook:

  • China's air travel market is expected to continue growing at double-digit rates.
  • The 4th runway at BCIA is not included in the base case due to pending government approvals.
  • The 2nd airport in Beijing is expected to be operational by end-2019E, potentially reducing BCIA's capacity constraints.

Summary Table

Company	Code	Rating	CCY	Price	12-m TP	Pot. Up/Down	2016 E/P (X)	2016 Div Yld
Beijing Airport	0694.HK	Buy	HKD	7.39	9.80	33%	14.5X	3.0%
Shanghai Int'l Airport	600009.SS	Neutral	CNY	27.24	31.90	17%	18.2X	-

Conclusion

• BCIA remains the top pick due to its resilient traffic demand, limited capacity, and potential for higher FCF and dividend growth.
• SIAC is rated Neutral due to its higher capex and slower growth compared to BCIA.
• Policy reforms and liberalization of duty-free licenses could pose upside risks for both airports.
• Valuation for BCIA is considered favorable against global peers, with potential for long-term value appreciation.