2018 A-Share Transportation Outlook

Transcription

1 Equity Research Transportation 218 A-Share Transportation Outlook Airlines to enter up cycle, remain positive on undervalued sector leaders Alex Fan, CFA SFC CE No. ADJ GF Securities (Hong Kong) Brokerage Limited 29-3/F, Li Po Chun Chambers 189 Des Voeux Road Central Hong Kong Contribution from the GF A-share research team: Cao Yifeng * caoyifeng@gf.com.cn * Please note that Cao Yifeng is not a registered licensee with the Securities and Futures Commission of Hong Kong and is not allowed to conduct regulated activities in Hong Kong. We believe the airlines and container shipping sectors are likely to offer sector-wide investment opportunities in 218. In particular, airlines is likely to achieve a substantial increase in profitability, while container shipping should have excess capacity cleared out and be ready for a rebound in 219. Meanwhile, we believe that undervalued stocks with high dividend yields and subsector leaders will maintain share price strength. Airlines: Sector upcycle driven by improving earnings amid contracting supply Cyclical movements in the airlines sector have typically been driven by the supplydemand cycle. The CAAC is focusing on flight punctuality rates in its current regulatory efforts, and has for the first time introduced stringent control of airport time slots, putting a strong constraint on sector supply. In addition, we have observed a slowdown in aircraft purchases by airline companies in 218. We expect the airline industry to overcome its previous failure to enhance profits despite rising business volume and see increases in both airfares and the PLF. The CAAC has also continued to relax its control over airfare pricing policies. Most of the flights currently subject to market-adjusted prices are regional, short-distance flights with a distance within 8km, while most first- and second-tier flights are still following government guidance prices. With the promotion of marketization reform, first- and second-tier flights will also gradually shift towards market-adjusted pricing, which should bring substantial improvement to earnings. We suggest watching China Southern Airlines (629 CH) and Air China (61111 CH) Container shipping: Sector supply-demand to improve as overcapacity continues to be removed The container shipping sector is bottoming out, though the sector is still undergoing a reduction of excess capacity which has constrained the momentum of freight rate growth. A large amount of outdated capacity was removed through ship disassembly in 216. Despite lacklustre freight rates in the peak season in 217, the idle rates of container ships decreased to a normal level. In 218 and 219, we believe container shipping supply growth will remain at a relatively low level, and that freight rates are very likely to increase steadily as the sector supply-demand balance improves. Rising industry concentration should further strengthen upward momentum of freight rates. We highlight China COSCO (61919 CH). Airports: Prefer stocks likely to benefit from visibility-driven premium as LT investment logic refocuses on organic growth As most factors driving the airport sector have been priced in, we believe the sector investment horizon will be extended going forward, and that investors will refocus on organic business volume growth when investing in the sector. We suggest selecting stocks: 1) with substantial room for capacity expansion, and 2) which are unlikely to make large-scale capex that is not in line with their flight structure. We suggest watching Shanghai International Airport (69 CH). Toll roads & rail transport: Earnings remains key for stock selection; reform expectations also worth watching For the toll road sector, stocks with high dividend yields are still our top picks. That said, given upcoming expiries of toll collection rights, we also suggest watching companies experiencing business transformation and growth companies with longer-lasting toll collection rights. For rail transport, Daqin Railway (616 CH) is our favorite as it is a typical undervalued sector leader with high dividend payouts. Meanwhile, Guangshen Railway (61333 CH) is certain to raise prices though its timetable for price hikes is uncertain. (Continued on next page ) This is a summary of a report originally written in Chinese. Please contact us for more information of the original report. The Chinese version shall prevail in the event of any discrepancy between the two versions.

2 sector outlook Courier & logistics: Highlight leaders in cost control amid slowing sector growth After decades of price wars in the sector, the level of customer loyalty and marginal benefits obtained through continued price competition are declining. As sector growth becomes slower, courier companies core competencies will lie in cost control and brand equity. We suggest watching Yunda Holding (212 CH) given its strong competitiveness and rising market share. In the supply chain management space, we prefer leading commodity supply chain management companies, such as Xiamen C & D (6153 CH), given the recovery in commodity trading. Risks: An economic slowdown, policy changes, and significant volatility in oil prices and exchange rates. Figure 1: Market share of big three airlines and No. of airline companies % Market share of big 3 No. of airlines 三大航市占率 (%) 客座率 PLF 航司数量 ( 右 ) airlines (RHS) Sources: From the Statistical View of Civil Aviation, company data, GF Securities Development & Research Center Figure 2: China civil aviation capacity estimates Aircraft (units) E 18E Sector capacity Sector capacity growth 16% 14% 11% 13% 13% 1% 1% 11% 1% 11.8% 11.3% 11.1% 9.5% Seat No. growth 12.7% 11.5% 11.7% 9.6% Proportion of big 3 airlines 71% 72% 7% 68% 65% 63% 62% Passenger volume growth 15% 16% 4% 2% 16% 1% 9% 11% 11% 11.3% 11.9% 12.% 11.% Air China CSA CEA Big 3 airlines Big 3 airlines growth 16% 7% 7% 8% 29% 7% 1% 11% 9% 8% 6% 7% 7% Hainan Airlines Spring Airlines Juneyao Airlines Big 6 airlines Big 6 airlines growth 12% 11% 1% 13% 9% 7% Non-big Non-big 6 growth 5% 1% 19% 2% 2% 18% Sources: Wind, Company data, GF Securities Development & Research Center Note: Listed companies contained in this table include Air China (61111 CH), China Southern Airlines (629 CH), China Eastern Airlines (6115 CH), Hainan Airlines (6221 CH), Spring Airlines (6121 CH), Juneyao Airlines (63885 CH). 2

3 218 sector outlook Figure 3: Overall container shipping rates (measured by CCFI) in 217 higher than same period in Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Figure 4: Container shipping fleet capacity estimates ( ) (k TEU) 交付量 Deliveries 拆解 Dismantling Capacity growth 运力同比增速 YoY % Q % Q % Q % Q % Q % Q % Q3 217E 3.9% 3.8% 3.7% 3.8% 3.2% Q4 217E Q1 218E Q2 218E Q3 218E Q4 218E 8.% 7.% 6.% 5.% 4.% 3.% 2.% 1.%.% Sources: Clarksons, GF Securities Development & Research Center Figure 5: BDI in 217 significantly higher than in 215 and Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Sources: Clarksons, GF Securities Development & Research Center 3

4 218 sector outlook Figure 6: Flight-related revenue the main source of revenue for domestic airports 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% % Proportion of flightrelated revenue flight-related revenue Proportion of non- 航空性收入占比非航收入占比 23.% 2.74% 49.48% 37.84% 77.% 79.26% 5.52% 62.16% Shenzhen 深圳 Airport SH Intl 上机 Airport GZ Baiyun 白云 Airport XM Intl 厦门 Airport Notes: Listed companies mentioned in this chart include Shenzhen Airport (89 CH), Shanghai Intl Airport (69 CH), Guangzhou Baiyun Intl Airport (64 CH) and Xiamen Intl Airport (6897 CH). Figure 7: Proportion of non-flight-related revenue, domestic vs. international airports (%) Figure 8: Per capita non-flight-related revenue, domestic vs. international airports (Rmb) Auckland Airport Mexico Southern Airport Vienna Airport Sydney Airport Singapore Airport Japan Airport Frankfurt Airport Xiamen Airport Shenzhen Airport Baiyun Airport Shanghai Airport 5.63% 53.28% 5.71% 54.99% 57.26% 74.7% 64.79% 37.84% 23% 2.74% 49.48% Auckland Airport Copenhagen Airport Sydney Airport Zurich Airport Singapore Airport London Airport Frankfurt Airport Paris Airport Xiamen Airport Shenzhen Airport Baiyun Airport Shanghai Airport % 2% 4% 6% 8% Note: Listed companies in this chart include Shanghai Airport (69 CH), Baiyun Airport (64 CH), Shenzhen Airport (89 CH), Xiamen Airport (6897 CH), Frankfurt Airport (FRA GR), Japan Airport (976 Tokyo), Sydney Airport (SYD ASE), Vienna Airport (Flu Vienna), Auckland Airport (AIA NZ) Note: Listed companies in this chart include Shanghai Airport (69 CH), Baiyun Airport (64 CH), Shenzhen Airport (89 CH), Xiamen Airport (6897 CH), Paris Airport (ADP FP), Frankfurt Airport (FRA GR), Zurich Airport (FHZN SW), Sydney Airport (SYD ASE), Copenhagen Airport (KBHL DC), Auckland Airport (AIA NZ) 4

5 218 sector outlook Figure 9: Decelerating courier business volume growth in 1M % 8% 6% 4% 2% % 1 Jan 月 Feb 2 月 3 Mar 月 Apr 4 月 May 5 月 6 Jun 月 July 7 月 Aug 8 月 Sep 9 月 1 Oct 月 11 Nov 月 12 Dec 月 Sources: Clarksons, GF Securities Development & Research Center Figure 1: Average courier delivery price down 55% over past decade (Rmb) 单价 Average price 同比 YoY % -5% -1% -15% -2% 5-25% % Sources: China Post, GF Securities Development & Research Center Note: Average courier delivery price = courier delivery revenue/courier delivery volume (excluding other semicourier-delivery services) 5

6 218 sector outlook Rating definitions Benchmark: Hong Kong Hang Seng Index Time horizon: 12 months Company ratings Buy Stock expected to outperform benchmark by more than 15% Accumulate Stock expected to outperform benchmark by more than 5% but not more than 15% Hold Expected stock relative performance ranges between -5% and 5% Underperform Stock expected to underperform benchmark by more than 5% Sector ratings Positive Sector expected to outperform benchmark by more than 1% Neutral Expected sector relative performance ranges between -1% and 1% Cautious Sector expected to underperform benchmark by more than 1% Analyst Certification The research analyst(s) primarily responsible for the content of this research report, in whole or in part, certifies that with respect to the company or relevant securities that the analyst(s) covered in this report: (1) all of the views expressed accurately reflect his or her personal views on the company or relevant securities mentioned herein; and (2) no part of his or her remuneration was, is, or will be, directly or indirectly, in connection with his or her specific recommendations or views expressed in this research report. 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