China Airport Sector Update May 2014

Transcription

1 China Airport Sector Update May 2014 Sources: Platinum Research, BCIA Platinum Broking IMPORTANT DISCLOSURES ARE PROVIDED ON THE LAST PAGE OF THIS REPORT

2 TABLE OF CONTENTS SECTION 1 Recent Developments Overview Passenger traffic Cargo traffic Airport expansion Traffic capacity... 5 SECTION 2 Company Focus Overview Operational comparison Financial comparison Other updates... 9 SECTION 3 Stock Recommendation Appendix Platinum Broking 2

3 SECTION 1 Recent Developments 1.1 Overview China s airport experienced a steady growth in According to figures from the Civil Aviation Administration of China s ( CAAC ), the total passenger traffic reached 354m in 2013, with YoY growth of 10.9%, and the growth further fastened to 12.6% YoY for the three months ended March 2014 ( 1Q14 ). Cargo volume increased 2.3% YoY to 5.6m tones in 2013, 4.3ppts higher than in 2012, and 1Q14 the growth was 5.6% YoY. Exhibition 1: China s passenger traffic and YoY growth Exhibit 2: China s cargo traffic and YoY growth Sources: CAAC Sources: CAAC In addition, 10 new airports became operational, adding to the total number of China s airports to 193. In terms of airports density (airport number/land area), China reached 20.1 airports per million sq km by the end of 2013, 1.9ppts higher than by 2010, but it is still low compared with US 56.4 or EU s Passenger traffic Passenger traffic to grow 10.5% in 2014 Passenger traffic grew steadily at 10.9% YoY for 2013 to 354.0m, 1.7ppts higher than 2012 s growth, and 1Q14 growth fastened to 12.6% YoY. The growth was mainly driven by the strong tourist demand, especially from outbound tourist. According to National Tourist Administration ( NTA ), the total number of tourist grew by 11.2% YoY to 3.8b person-time in Among which, domestic tourist number (accounted for 93.6% of total tourist) remained at 11.6% annual growth, whilst the outbound tourist, boosted in the last five years with a CAGR of 19.7%, continued a double-digit growth of 17.8% to 98m in 2013, and will continue to be the key passenger traffic growth driver for airports. In contrast, the inbound tourist number further declined by 2.6% in 2013, mainly due to the sluggish global economy and RMB appreciation. Looking ahead, China s national tourist growth is expected by NTA to be 8.4% in As outbound tourist will remain to be a major contributor to total tourist growth, longer term travelling means, especially by air, is expected to see faster growth. According to CAAC, the total passenger traffic growth is estimated by CAAC to be at 10.5% in Platinum Broking 3

4 Exhibition 3: Monthly passenger traffic Exhibit 4: China s tourist Sources: CAAC Sources: NTA 1.3 Cargo traffic Cargo volume to further rebound up with 5.3% growth in 2014 In 2013, cargo volumes increased 2.3% YoY to 5.6m tons after two years declining (-1.1% and -1.8% YoY in ), and the growth further recovered in 1Q14 by 5.6% YoY (1Q13: 4.7%). The increase was backed by both foreign trade and courier business boost. Exhibition 5: Cargo traffic Sources: CAAC Given a mild recovery of global economy, China's foreign trade picked up with a growth of 7.6% YoY in 2013, +1.4ppts from In addition, among all types of cross-border cargo transportation supervised by the General Administration of Customs, aircrafts movements saw the fastest growth at 10.2% in 2013 (1Q14: 9.1%), compared with train s 6.9%, car s 1.8% and ship s -0.7%. Besides, another supports to the cargo increase is from courier sector s rapid growth. Cross-province and Cross-border courier volume surged 57.8% YoY to 266.4m items in Giving the expectation of a steady recovery of China s foreign trade and strong courier demands ahead, the cargo volumes is expected by CAAC to grow by around 5.3% in Platinum Broking 4

5 Exhibition 6: China s foreign trade Exhibit 7: Courier volume Sources: General Administration of Customs Sources: State Post Bureau 1.4 Airport expansion 10 new airports completed in In 2013, China has 10 new airports completed, adding the total number of China s airport to 193. All the new airports were located in lower tier cities. According to China s 12 th Five-Year Plan and The National Civil Airport Layout Plan, the total number of airports will reach over 230 by 2015 and to 244 by 2020, indicating 37 airports to be built in the next two years or 51 airports in next 7 years. Most of the to-be-built airports locate in middle and west parts of China and are of low tier cities (except Beijing new airport) (Details please refer to Appendix). No matter the airport number target can be achieved or not, CAAC is putting more focus on the bottleneck problems of existing airports, e.g. improving their handling capacity by more runway/terminal development, and reducing the flight latency by less aerospace restrictions. 1.5 Traffic capacity ASK of major 3 airlines increased 21.2% YoY in China s major airlines, namely Air China, China Eastern Airlines, and China Southern Airlines, expanded their transportation capacity rapidly in 2013, with available seat kilometres ( ASK ) and available tonne Kilometres ( ATK ) aggregately increased 21.0% YoY and 16.1% respectively in Among the four players, Air China s ASK and ATK increased the fastest by 47.8% YoY, given more flights demand to overseas destinations especially North America and Europe. As the base port of Air China, Beijing airport should be benefited from the increases of both aircraft movement and passenger traffic. Exhibit 8: Airlines traffic capacity comparison Benchmarks (2013) Unit Air China China Eastern China Southern Hainan Total Mkt cap (8 May 2014) RMB b Aircrafts number ,620 ASK mil passenger km 175, , ,800 52, ,303 YoY Chg 47.8% 11.5% 10.1% 13.5% 20.4% ATK mil ton km 24,507 21,787 24,951 5,791 77,037 YoY Chg 32.2% 10.5% 8.1% 3.7% 15.1% Base port Beijing Shanghai Guangzhou Haikou Sources: Company Data, Platinum Research Platinum Broking 5

6 SECTION 2 Company Focus 2.1 Overview There are six listed airports, including two listed on the Hong Kong exchange, namely Beijing Capital International Airports ( BCIA ) and Hainan Meilan International Airport ( Meilan ), and 4 listed in A-share market, namely Shanghai International Airport ( SHIA, which operates Pudong airport), Guangzhou Baiyun International Airport ( Baiyun ), Xiamen International Airport ( Xiamen ), and Shenzhen Airport ( Shenzhen ). China s major airports all ranked top 30 in the world, in terms of cargo volume. BCIA remained 2 nd in terms of passengers. According to Airports Council International ( ACI ), BCIA, Baiyun and SHIA airports are all among the world s 20 busiest airports in terms of passengers. Baiyun has the highest passenger growth among top 20s. In terms of cargo volume, China s major airports in Beijing, Shanghai, Guangzhou and Shenzhen were all among the world s 30 busiest airports in Except SHIA, other airports have kept relatively high growth among world s top 20 airports. Exhibit 9: Top airports: rankings by cargo volume and passenger (2013) Rank City (Airport) Cargo('000 ton) % Chg Rank City (Airport) Passenger (m) % Chg 1 HONG KONG, HK (HKG) 4, % 1 ATLANTAGA,US(ATL) % 2 MEMPHIS TN, US (MEM) 4, % 2 BEIJING,CN(PEK) % 3 SHANGHAI, CN (PVG) 2, % 3 LONDON,GB(LHR) % 4 INCHEON, KR (ICN) 2, % 4 TOKYO,JP(HND) % 5 DUBAI, AE (DXB) 2, % 5 CHICAGOIL,US(ORD) %...13 BEIJING, CN (PEK) 1, %...11 HONGKONG,HK(HKG) % 19 GUANGZHOU, CN (CAN) 1, %...16 GUANGZHOU,CN(CAN) %...24 SHENZHEN, CN (SZX) %...21 SHANGHAI,CN(PVG) % Sources: ACI, Platinum Research Note: Figures may be different from data released by individual airports. 2.2 Operational comparison Large airports grew slower than industry The 7 selected airports (6 listed plus Shanghai Hongqiao) aggregately achieved passenger and cargo throughputs growth of 6.2% and 2.8%, respectively, and aircraft movements added 4.6% YoY in All the three benchmarks grew slower than industry average, and their total market share moved down by 1.7%, 1.3% and 1.7% respectively. Smaller-scale airports are taking more market shares amid ongoing urbanization towards lower tier cities, as well as traffic constrains in larger cities. Tourism airports saw stronger growth In terms of passenger throughputs and aircraft movements, BCIA remains as the busiest airport with 83.7m passenger throughput with market share of 11.1%. Xiamen and Meilan airports outpaced the industry pace with double-digit growth, while first tier cities airports saw slower growth. The different performance of tourism destination airports and commercial destination airports may be related with stronger domestic tourism demand vs. China Government s limitation of conference expenses. Platinum Broking 6

7 For cargo volume, SHIA was still the busiest with a market share of 23.3%, but it was also the most affected by weak foreign trade especially to Japan (-5.1% YoY for China-Japan foreign trade amount in 2013). Meanwhile, we found the aircraft movements of nearly all the selected airport (except Xiamen) grew slower than passenger throughput growth. This may be related with the trend that airlines are using more wide-body aircraft so as to reduce unit cost. Airports can benefit from higher charges on the wide-body aircraft. Exhibit 10: Operational figures of selected airports BCIA SHIA Baiyun Hongqiao Shenzhen Xiamen Meilan Sub-total Industry Passenger throughput (m persons) YoY Chg 2.2% 5.2% 9.1% 5.3% 9.1% 13.9% 11.6% 6.2% 11.0% % /industry total 11.1% 6.3% 7.0% 4.7% 4.3% 2.6% 1.6% 37.5% 100.0% Cargo throughput (m ton) YoY Chg 2.5% -0.3% 5.1% 1.2% 7.0% 10.3% 11.9% 2.8% 4.9% % /industry total 14.6% 23.3% 10.4% 3.5% 7.3% 2.4% 1.6% 62.9% 100.0% Aircraft movements ,085 7,315 YoY Chg 1.9% 2.6% 5.2% 3.8% 5.8% 14.1% 11.2% 4.6% 10.8% % /industry total 7.8% 5.1% 5.4% 3.3% 3.5% 2.3% 1.2% 28.5% 100.0% Sources: Company Data, CAAC, Platinum Research Exhibit 11: Operational figures Sources: Company Data, CAAC, Platinum Research 2.3 Financial comparison In, listed airports had revenue and earnings growth of 8.0% and 13.1%, respectively, on average. Except for Shenzhen with high CAPEX given T3 s lunch, all other airports saw earnings grew above 10% YoY, backed by (1) Recovery in aeronautical revenue; (2) 40% increased aeronautical charges on international flights paid by domestic airlines ( IFbDA ) since 1 April, The IFbDA factor is estimated to have contributed to earning increment by 1/3~1/2 for BCIA and SHIA, respectively, in. And Platinum Broking 7

8 (3) Cost saving from Value Added Tax ( VAT ) trial in the airport industry. Take BCIA for instance, the tax on company s aeronautical revenue decreased 91.0% to RMB 7.9m, representing tax rate of 0.2% (vs. FY12 s 6.4%). Notably, BCIA and SHIA s turnover growth outpaced their traffic growth; to the contrary, Baiyun and Shenzhen failed to achieve similar turnover growth with their traffic growth. We think this is resulted from BCIA and SHIA s stronger bargaining power to airlines, given their strong presence in the located area. Exhibit 12: Financial comparison result BCIA SHIA Xiamen Meilan Baiyun Shenzhen Turnover (RMB m) 7,225 5,215 1, ,141 2,546 YoY chg (%) 5.3% 10.5% 12.1% 11.1% 10.0% 3.0% Operating profit/(loss) (RMB m) 2,284 2, , Operating margin 31.6% 48.1% 49.0% 51.5% 25.6% 27.1% Net profit 1,329 2, YoY chg (%) 13.3% 17.7% 16.4% 14.4% 20.2% -13.2% Net margin 18.4% 38.8% 35.1% 45.7% 18.5% 20.0% Sources: Company data, Platinum Research Non-aeronautical revenue will be the key revenue growth driver in Non-aeronautical revenue accounted for 42.7% of listed airports revenues in, 5.0 ppts higher than FY12. In particular, contributions from retailing and restaurants segments revenues increased steadily in, which were helped by both increasing business area via the airport expansions and increasing consumption demand from tourist as well. Exhibit 13: Revenue breakdown () Name Total Revenue Aeronautical Non-Aeronautical Revenue Component as % of Total Revenue (RMBm) Revenue Total Advertising Rentals Retailing Restaurants & Ground Others food shops handling BCIA 7, % 41.8% 10.7% 11.3% 12.2% 1.7% 1.5% 4.5% SHIA 5, % 45.7% 1.1% 8.4% 30.2% NA 6.0% Baiy un 5, % 45.7% 7.2% 4.4% 3.1% 3.0% 15.7% 12.5% Shenzhen 2, % 43.7% 7.3% NA NA NA 24.3% 12.1% Xiamen 1, % 36.4% NA 23.0% NA NA 2.1% 11.3% Meilan % 43.0% NA 4.4% 20.9% NA 8.9% 8.7% Average 57.3% 42.7% Comparing with international listed airports, the contribution from non-aeronautical revenue remained low. The average non-aero revenue contribution to revenue for the listed airports was 40.6%, as compared with 3 selected global airport s (Sydney, Franport and Hongkong) 64.0%. The per capita figure (non-aero revenue per passenger) in China was also low at RMB36.4, which was 71% lower than international peers. Looking ahead, given improving retail environment and increasing disposal income of Chinese, the average spending within the airport, especially from retailing and restaurants, is expected to support non-aeronautical revenue growth. Platinum Broking 8

9 Exhibit 14: Non-aero revenue contribution Exhibit 15: Non-aero revenue per passenger Sources: Company data, Platinum research Sources: Company data, Platinum research 2.4 Other updates After years of development, many of the major airports have experienced bottleneck of handling capacity. For example, airports of BCIA, SHIA, Baiyun and Shenzhen have approaching their designed runway capacity. Therefore, many of them have expansion plans in the pipeline. Exhibit 16: Listed airports expansion and other movements Expansions BCIA (694.HK) 1.2nd airport expected to complete in (by parent company) Other issues 2.Fourth runway is highly expected. SHIA ( CH) 1. T1 renovation to be completed in th runway completed in Baiyun Airport ( SH) 1. 3rd runway to be completed in Shanghai FTZ launched in Oct Disneyland to be completed by end Possible FTZ within Guangdong. Shenzhen Airport ( SZ) 2. T2 to be completed in T3 commercialized in Nov Planned expansion of 3rd runway. 1. Possible FTZ within Guangdong. Xiamen Airport ( CH) 1. T4 expected to be completed in mid Possible FTZ. Meilan (357.HK) 1. New international airport commercialized in August Expansion of station complex. Sources: Company data, various sources From the above plans, BCIA is well positioned among the peers as the airport had finished its expansion plans, thus lower CAPEX required in the short run and less pressures on BCIA s profitability. While Baiyun Airport is facing more CAPEX pressures in FY14, as the T2 and 3rd runway were under construction. The Free Trade Zone ( FTZ ) topic is the main share price driver for airports in late Given China (Shanghai) Pilot Free Trade Zone ( Shanghai FTZ ) getting approval on 22 Aug 2013, shares of SHIA moved up by 23.6% in two months. Besides Shanghai, Guangdong, Fujian, Tianjing and other 16 provinces have submitted their FTZ plans as well. On the expectation for more foreign trade activities in FTZ areas, related airports may benefit from boosted passenger and cargo volume. Platinum Broking 9

10 SECTION 3 Stock Recommendation China s airport sector is expected to see steady growth in passenger throughput and cargo volume backed by macroeconomic stability and increasing tourist demand. The non-aeronautical business is also expected to grow rapidly. Exhibit 17: QT of listed airports Name Ticker The share price performance of listed Chinese airports was mixed in Currently, the airport sector is trading at an average PER of 13.1x and 11.5x for H-share and A-share respectively, and PBR is 1.1x and 1.2x respectively. Among the six listed airports, SHIA is our top pick among 4 A-share listed airports, whilst BCIA is our top pick in Hong Kong Listed, given their: (1) High exposure to international flight to meet the fast-growing demand from outbound tourist; (2) High non-aeronautical income contribution; and (3) Strong bargaining power with airlines, so as to enjoy higher returns on traffic growth. Mkt cap (HK$m) Closing price (HK$) 52-week High/Lo w (HK$) 6M Volume (m shrs) PER (x) PER (x) PER (x) PBR (x) PBR (x) PBR (x) EV/EBITD A (x) EV/EBITD A (x) EV/EBITD A (x) HK listed 1 BCIA 694 HK 23, / Meilan 357 HK 3, / Simple avg Mkt cap wtd avg China listed 1 SHIA CH 32, / Baiyun CH 9, / Shenzhen CH 7, / Xiamen CH 5, / Simple avg Mkt cap wtd avg Global listed 1 Sydney Airport SYD AU 70, / Airports Of Thailand AOT TB 64, / Malaysia Airports H MAHB MK 26, / Simple avg Mkt cap wtd avg Name PSR (x) PSR (x) PSR (x) Yield (%) Yield (%) Yield (%) ROA (%) ROA (%) ROA (%) ROE (%) ROE (%) ROE (%) FY16E ROE (%) Net gearing (%) HK listed 1 BCIA Meilan (14.28) Simple avg Mkt cap wtd avg China listed 1 SHIA (24.69) 2 Baiyun (22.21) 3 Shenzhen Xiamen Simple avg (7.28) Mkt cap wtd avg Global listed 1 Sydney Airport Airports Of Thailand (2.98) 3 Malaysia Airports H Simple avg Mkt cap wtd avg Note:Price and market cap as of 7 May 2014 Sources: Bloomberg, Platinum Research Platinum Broking 10

11 Recommendation BUY Target price: HK$6.92(+26.5%) Beijing Capital International Airport (0694 HK) 7 MAY 2014 SECTOR: AVIATION HSI: 21,837 PRICE: HK$5.47 EARNINGS KEY DATA For the fiscal year ended Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Issued Capital (m Shrs) 1,879 Turnov er (RMBm) 6,500 6,863 7,225 7,865 8,464 Market Cap (HK$ b) 10.3 Operating Profit (RMBm) 2,078 2,149 2,284 2,748 3,006 Av g. Daily Vol. 4.8m Operating margin (%) 32.0% 31.3% 31.6% 34.9% 35.5% 52-w eek High/Low (HK$) 6.8/4.26 Net Profit (RMBm) 1,114 1,173 1,329 1,623 1,875 Net Gearing (%) 72.8 Net margin 17.1% 17.1% 18.4% 20.6% 22.1% Free Float 32.4% EPS (RMB) Major Shareholders Capital Airports Holding (56.6%) % Change 85.7% 3.8% 14.8% 20.6% 14.4% NWS(10.0%) Yield 1.7% 2.3% 2.6% 3.1% 3.3% Operational data For the fiscal year ended For the 3 months ended Dec-12 Dec-13 % chg Mar-13 Mar-14 % chg Passenger throughput (m) % % Aircraft mov ement ('000) % % Cargo v olume ('000 tons) 1, , % n.a n.a Sources: Company data, Bloomberg, Platinum Research SECTION 1 RESULTS BRIEFING Earnings increased 13.3% YoY in. Beijing Capital International Airport ( BCIA ) reported a net profit of RMB1,3b for the year ended 31 December 2013 ( ), up 13.3% YoY. Revenue grew 5.3% YoY backed by steady growth in passenger traffic (+2.2%) and cargo volume (+2.4%). Besides the interim dividend of 4.66 fen, it announced to pay another dividend of 7.61 fen per share, indicating an annual dividend yield of 2.6%. Both aeronautical and non-aeronautical revenue remained steady growth. In, BCIA s aeronautical revenue increased by 5.5% YoY, partly contributed by a 9.0% increase in its aircraft movement fees and related charges that benefitted from the removal of a 40% charge discount on international routes operated by domestic carriers. Non-aeronautical revenue increased 4.9% YoY, and its contribution to revenue edged up by 0.4ppt YoY to 41.8%. Revenue from concessions, rentals and car parking fees increased 1.5%, 2.1% and 181.9% respectively. SECTION 2 COMPANY BACKGROUND China s busiest airport. Founded in 1999 by Capital Airports Holdings, BCIA was listed in Hong Kong in It is China s top airport in terms of passenger throughputs. BCIA s Platinum Broking 11

12 passenger throughput reached 83.7m in 2013, accounted for approximately 11.2% of the national total. According to Airports Council Intentional ( ACI ), BCIA also ranked second in the world in terms of passengers. There are about 1,400 flights of over 70 airlines connecting Beijing with 191 cities globally. It currently has 3 terminals, 3 runways and 2 controlling towers. Exhibit 1: Corporate chart Civil Aviation Administration of China (CAAC) NWS Holding Capital Airports Holding Public investors 56.6% 10.0% 32.9% BCIA (694.HK) Sources: Company Data SECTION 3 Outbound tourist to help keep steady aeronautical income. BUSINESS OUTLOOK Stable growth in aeronautical activities. BCIA s passenger throughput and aircraft movement increased steadily at 2.2% YoY and 1.9% YoY respectively in In 2H13, the international aircrafts movement showed a higher growth than the domestic s, which was mainly driving by the outbound tourist demand in Beijing. After boosted outbound tourist growth in 2012 (2.7m, up 48.3% YoY), Beijing outbound tourists continued to increase 21.5% YoY to 3.7m in 2013 (3.5ppts higher than the national average), which became the key passenger throughput growth driver for BCIA. Looking ahead, back by the higher disposal income, the tourist demand in Beijing will continue to increase, especially for outbound travel. Also, it will be the key aeronautical revenue growth driver within FY14. Exhibit 2: Monthly passenger throughputs and YoY chg (m) Exhibit 3: Monthly aircraft movement and YoY chg Sources: Company data Sources: Company data. Platinum Broking 12

13 High aeronautical revenue charged per movement. In, BCIA aeronautical revenue per aircraft movement was RMB7,401, 2 nd highest among China s listed airports only after SHIA. It indicated higher bargaining power by BCIA to airlines than most of its peers, and is one of the reasons for BCIA s relatively higher revenue growth of 5.3% in, comparing with its aircraft movement growth of 1.9%. We believe this should continue to support BCIA s aeronautical revenue growth given its steady traffic growth. Exhibit 4: Aeronautical revenue per aircraft movement (2013) Sources: Company Data Higher non-aeronautical revenue amid increasing business area. Increasing portion from non-aeronautical. The non-aeronautical revenue increased at a 5-year CAGR of 13.3%, 6.7ppts higher than the aeronautical revenue s 7.6% CAGR, after the launch of T3 which brings additional 47,000 sq m business area to BCIA. According to BCIA s announcements, there is 7,284 sq m business area available for rent, which is approximate 8% of the total business area. We believed it would bring additional 2-3% non-aeronautical revenue growth in. New runway is highly expected. Further expansions expected. Currently BCIA s 3 runways are handling 1,555 aircraft per day, or per runway per day, which is much higher than China s top airports average of The bottleneck on runway capacity limits BCIA s aircraft movement growth, and thus an additional runway is a solution widely discussed to improve the traffic capacity. It is expected to receive approval from CAAC in the no long term. Exhibit 5: Aircraft movements per runway per day of top airports (2013) Airport Rank Total per day no of runways movements per runway per day Beijing Capital 1 567,757 1, Guangzhou Baiyun 2 394,403 1, Shanghai Pudong 3 371,190 1, Shenzhen Baoan 4 257, Kunming Changshui 5 255, Chengdu Shuangliu 6 250, Shanghai Hongqiao 7 243, Xian Xianyang 8 226, Chongqing Jiangbei 9 214, Hangzhou , Xiamen Gaoqi , Haikou Meilan 22 94, Average: Sources: CAAC, Platinum Research Platinum Broking 13

14 Beijing 2 nd airport to be completed in In addition, the State Council in 2012 approved the construction proposal of second airport of Beijing in Daxing District (close to Hebei Province), with expectation to start operation in It is reported to start household relocation in Jan BCIA is not expected to be involved with the construction, thus no CAPEX on this issue. We believed BCIA would be the operator of the new airport after the completion, in certain terms of agreement with its parent company, and can be benefitted from increasing capacities and business areas. Exhibit 6: BCIA revenue breakdown Exhibition 7: Map of 2 nd airport in Beijing Hebei Tianjin Sources: Company data Sources: Google Exhibit 8: BCIA capacity Aircraft movement Passenger throughput Cargo throughput (m) (m tons) 1 st airport (2013)(% YoY) 567,750 (+1.9%) 83.7 (+2.2%) 1.84 (+2.5%) 2 nd airport (2018 target) 620, nd airport (longer target) 840, Note *: As of 2013 figure. Sources: BCIA, CARNOC, Platinum Research New major shareholder strong at construction. Shareholder changed. NWS Holdings Limited (659.HK) purchased BCIA s 8.8% stake from GIC for a total consideration of HK$2.4b in December It indicated a price of HK$6.15 per share, which was only a small discount of 2.1% to the closing price before the announcement. In addition, NWS further increased its shareholding in BCIA to 10.0% in February 2014, reported by news. NWS s experience in construction area is expected to help BCIA or its parent group for the expansion of existing terminals and construction of the second airport. Regarding to the GIC, we believed GIC is changing its portfolio strategy on China s airport, since GIC also sold its shareholding in SHIA in the A share market in 1H13. Platinum Broking 14

15 SECTION 5 VALUATION Exhibition 9: Relative valuation of listed airports Name Ticker Mkt cap (HK$m) Closing price (HK$) 52-week High/Lo w (HK$) 6M Volume (m shrs) PER (x) PER (x) PER (x) PBR (x) PBR (x) PBR (x) EV/EBITD A (x) EV/EBITD A (x) EV/EBITD A (x) HK listed 1 BCIA 694 HK 23, / Meilan 357 HK 3, / Simple avg Mkt cap wtd avg China listed 1 SHIA CH 32, / Baiyun CH 9, / Shenzhen CH 7, / Xiamen CH 5, / Simple avg Mkt cap wtd avg Global listed 1 Sydney Airport SYD AU 70, / Airports Of Thailand AOT TB 64, / Malaysia Airports H MAHB MK 26, / Simple avg Mkt cap wtd avg Name PSR (x) PSR (x) PSR (x) Yield (%) Yield (%) Yield (%) ROA (%) ROA (%) ROA (%) ROE (%) ROE (%) ROE (%) FY16E ROE (%) Net gearing (%) HK listed 1 BCIA Meilan (14.28) Simple avg Mkt cap wtd avg China listed 1 SHIA (24.69) 2 Baiyun (22.21) 3 Shenzhen Xiamen Simple avg (7.28) Mkt cap wtd avg Global listed 1 Sydney Airport Airports Of Thailand (2.98) 3 Malaysia Airports H Simple avg Mkt cap wtd avg Note:Price and market cap as of 7 May 2014 Sources: Bloomberg BCIA is currently traded at a PER of 13.0x, which is at a premium of 10.6% compared to the A-share listed peers average of 11.8x, but 64.0% discount to Asia-Pacific listed peers. We preferred BCIA as (1) strong aeronautical revenue growth backed by the boosted outbound tourist demand in China, (2) high aeronautical revenue per aircraft movement, (3) stable non-aeronautical revenue driven by the additional business area, (4) possible expansion of the 4 th runway to increase traffic capacity, and (5) relatively low valuation to Asia-Pacific peers. Therefore, we value BCIA at 15x PER, middle end of the historical PER or 58.6% discount to Asia-Pacific peers. We have a target price for BCIA at HK$6.92, an upside potential of 26.5%. BUY. Platinum Broking 15

16 Exhibition 10: BCIA 2-year Price Chart Sources: Reuters Platinum Broking 16

17 Appendix Exhibit 1 China airports ranking 2013 (Top 40 by passenger throughput) Airport Passenger throughput Cargo Throughput (tons) Aircraft movements Rank 2013 YoY chg (%) Rank 2013 YoY chg (%) Rank 2013 YoY chg(%) Total 754,308, ,585, ,315, Beijing Capital 1 83,712, ,843, , Guangzhou Baiy un 2 52,450, ,309, , Shanghai Pudong 3 47,189, ,928, , Shanghai Hongqiao 4 35,599, , , Chengdu Shuangliu 5 33,444, , , Shenzhen Baoan 6 32,268, , , Kunming Changshui 7 29,688, , , Xian Xiany ang 8 26,044, , , Chongqing Jiangbei 9 25,272, , , Hangzhou Xiaoshan 10 22,114, , , Xiamen Gaoqi 11 19,753, , , Changsha Huanghua 12 16,007, , , Wuhan Tianhe 13 15,706, , , Urumqi Diw opu 14 15,359, , , Nanjing Lukou 15 15,011, , , Qingdao Liuting 16 14,516, , , Dalian Zhoushuizi 17 14,083, , , Zhengzhou Xinqiao 18 13,139, , , Sany a Fenghuang 19 12,866, , , Sheny ang Taox ian 20 12,106, , , Haikou Meilan 21 11,935, , , Guiy ang Longdongpu 22 10,472, , , Harbin 23 10,259, , , Tianjing Binghai 24 10,035, , , Fuzhou 25 8,925, , , Nanning 26 8,157, , , Jinan 27 8,139, , , Taiy uan 28 7,803, , , Nanchang 29 6,811, , , Changchun 30 6,733, , , Wenzhou 31 6,595, , , Hohhot 32 6,150, , , Guilin 33 5,875, , , Lanzhou 34 5,649, , , Hefei 35 5,628, , , Ningbo 36 5,459, , , Shijiazhuang 37 5,110, , , Beijing Nany uan 38 4,455, , , Yinchuan 39 4,247, , , Lijiang 40 3,999, , , Sources: CAAC, Platinum research Platinum Broking 17

18 Appendix Exhibit 2 China s airports location Sources: CAAC, Platinum research Platinum Broking 18

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