- Jump of 21% in 2017H1 Earnings
- Aviation business revenue increased by 3.5% YoY
- Soar of 26% in non-aeronautical business
- As the duty-free bidding is about to start, the value of airline hub is stable
Investment Thesis
We increase the Company's EBITDA per share to RMB2.17 in 2017 and RMB2.6 in 2018, respectively, with the estimation of a 20/17x multiple during the two years. The target price is increased to RMB44.35 and the "Accumulate" rating is maintained.
In H1 2017, twenty percent more were earned, and the net profit attributable to the parent company witnessed a YoY increase of 21%
Shanghai Airport recorded operating revenues of RMB3,898 million in 2017, up by 14.71% YoY; the net profit attributable to the parent company stood at RMB1,696 million, up by 20.56% YoY; its basic EPS was RMB0.88, up by20.55% YoY, and no interim dividend was generated.
The revenue of aviation business, under the influence of assessment on punctuality rate, increased by 3.5% YoY
In H1 2017, benefiting from the relatively low oil price and the slow recovery of macro economy, Chinese airline industry progressed steadily, the airline passenger volume maintained good growth momentum, the market demand was huge, and the air passenger transport market maintained a rapid growth. The revenue ton kilometers, passenger traffic volume, and cargo and mail traffic volume of the whole industry in H1 2017 witnessed a YoY growth of 12.5%, 13.4% and 5.1%, respectively. The aircraft movements, passenger throughput and cargo and mail throughput recorded by domestic airports also correspondingly grew by 10.4%, 13.5% and 8.9% YoY, respectively, and the three indicators of Shanghai Airport witnessed a YoY growth of 3.9%, 6.5% and 13.6%, respectively.
The growth of aircraft movements and passenger throughput of the Company were lower than the industrial averages, since the assessment on punctuality rate failed to meet the standards. As a result, the aeronautical business of H1 only grew by 3.5% YoY to RMB1,803 million. At the same time, from the perspective of structure, the growth (+11%) of passenger throughput of domestic route was far higher than that (+3%) of international route, and the performance of the growth of cargo throughput of international route was impressive (+18%).
The non-aeronautical business went beyond expectation and greatly grew by 26%
The reason why the result went beyond expectation mainly lies in high-growth non-aeronautical business. In H1, the Company reported a revenue of non-aeronautical business of RMB2,094 million, a great YoY increase of 26%, and its proportion in the total revenue increased by 5 ppts to 54%, surpassing the revenue of aeronautical business for the first time. Wherein, mainly benefiting from the expansion of commercial space after transformation of T1 terminal, the annual revenue of business tenancy increased by 35.99% YoY to RMB1,436 million, and that of non-aeronautical business increased by 9.68% YoY to RMB658 million.
As the duty-free bidding is about to start, the value of airline hub is stable
The duty-free business contract of the Company will expire in March 2018, and the management has indicated that a new round of bidding plan is underway, and we expect that it will be started before the end of this year. It is expected that the commission percentage will increase from about 25% to 45%, greatly improving the result of the Company.
In H1 2017, the annual passenger throughput of Shanghai Airport consolidated its second place at home. Wherein, the international and regional passenger volumes continually maintained the first place at home. The Company is still promoting the construction of air hub in the Yangtze River economic belt that centers on Shanghai, continually optimizing the structure of its airline network, and emphatically developing the international remote air routes. In H1, Shanghai Airport newly increased 2 international traffic points and densified 2 remote air routes; moreover, it newly increased 3 overseas airlines, enhancing its European and American remote air route markets. As at the end of June, there were a total of 234 traffic points, of which 109 and 125 were at home and abroad (including regions), respectively, demonstrating that its position of airline hub is stable. In the future, after Phase III of the expansion project is completed, the passenger throughput will exceed 80 million, and the "single-terminal double-runway" will change to the operational mode of "multiple-terminal multiple-runway". Therefore, it is expected that the Company will starts its new round of stable growth.
Investment Thesis
We increase the Company's EBITDA per share to RMB2.17 in 2017 and RMB2.6 in 2018, respectively, with the estimation of a 20/17x multiple during the two years. The target price is increased to RMB44.35 and the "Accumulate" rating is maintained.
Financials
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