Author

章晶小姐 (Zhang Jing)
高級分析師

本科畢業於同濟大學工科，碩士畢業於華東師範大學金融貿系。現為輝立証券持牌高級分析師，主要負責汽車及航空板塊的研究，曾獲得《華爾街日報》亞洲區2012年度汽車及零部件最佳分析師第二名，擅長將行業前景與上市公司結合分析。

Bachelor Degree in Tongji University of Engineering; Master Degree in East China Normal University of finance. Currently cover automobile and air sectors. Having worked in research for years and is good at combining analysis for the companies with industry prospects.

Phone:	86 21 51699400-103	Email:	zhangjing@phillip.com.cn
For Research Report and Business enquiry

Beijing Capital International Airports (694.HK) — Restore stable growth with low-base incentives ended

Thursday, December 17, 2009

4763

Beijing Capital International Airports(694)

Recommendation on 17 December 2009
Recommendation	BUY
Price on Recommendation Date	$4.900
Target Price	$6.000

Weekly Special - 2333 Great Wall Motor

Summary

The aircraft movements of Beijing Capital International Airports (hereinafter referred as “the Company” or “BCIA”) represented an increase of 3.7% y/y in October 2009, and 8.9% cumulative from July to October, showing a slowing growth rate. We attribute the slowing of growth rate firstly to the end of low-base incentives as in the same period of the previous year the delayed aviation demand is being released and the air transportation business warms up just after the Beijing Olympic.

FY09H1 net profit jumped 86% y/y, but below consensus. The key reason is the disappointed non-aeronautical business revenues which were only up 11% y/y.

Concerns about the gradually stabilizing global economy and improving China aviation, in our view the air aviation of BCIA would restore stable growth with the end of low-base incentives. While in the future, the stubbornly high capital expenditure and probably returning to A share remains the negative factor and the catalyst for the Company's stock price respectively. We revised our forecast on EBITDA per share in 2009 and 2010 to be HK$0.63 and HK$0.75 respectively, 12-month target price of HK$ 6, BUY rating.

What's New

Passenger business：Low-base incentives ended，growth rate falls

The aircraft movements of BCIA represented an increase of 3.7% y/y in October 2009, and 8.9% cumulative from July to October, showing a slowing growth rate. In specific routes, the domestic route rose 4% y/y in October 2009, and International + HK & Macao route edged 1% y/y. We attribute the slowing of growth rate firstly to the end of low-base incentives as in the same period of the previous year the delayed aviation demand is being released and the air transportation business warms up just after the Beijing Olympic; Secondly, aviation control from the 60 Anniversary of China National Day may have some negative effects on the air traffic volumes of BCIA.It is the same with the passenger throughput: the passenger throughput reached approximately 6.03million in October 2009, representing an increase of 6.2% y/y, back to single-digit growth from September.

It is still seemed unsmooth recovery for the international route as the aircraft movements and passenger throughput declined 2.4% and 2.1% respectively, however, the cumulative growth rate from July to October increased by 1.4 pts and 12.9pts respectively, reflecting capacity reducing by the airlines.

Cargo business: apparent increase

As for the cargo business, situation is relatively optimistic, the freight throughput of BCIA increased 13% y/y. In specific routes, the domestic route recorded 25% and 26% y/y growth in October and from July to October respectively. The international route rose 0.6% y/y, though small increase, while showing significant improvement compared with the first half of the year.

Review of FY1H09

Net earning rose 86%, but below consensus

BCIA reported a RMB 2.31 billion 1H09 total income, up 15% y/y. Operating expense increased 5.3% y/y to 195million and net profit jumped 86% y/y to 105million. The key reason for the earning disappointment to consensus is the non-aeronautical business revenues which were only up 11% y/y. EPS stood RMB0.02 yuan.

Aeronautical traffic grew robustly

Impacted by economy stimulation plan, plus the low 2008 base as the number of air flights of the Beijing was reduced during the Olympic, the domestic aviation consumption of BCIA saw two-digital growth since 2009 beginning. The passenger throughput and aircraft movements of the domestic route of BCIA surged 27.1% y/y and 25.3% y/y respectively. Affected by global economy, the international route show slow recovery with the passenger throughput and aircraft movements down 2.7% and 5.5% respectively. The overall passenger throughput and aircraft movements increased by 18.2% and 19.1% respectively, higher than the main domestic airports, which helped to support the aeronautical income growth.

Secondly, from March 1st, 2008, a new set of rates and policies for charges has come into effect, according to which, the passenger charges ratio to be adjusted from a fixed P L/F of 65% to the actual P L/F. This has a positive impact on the hub airport's whose P L/F always remains at relatively high level.

For the first half year of 2009, the aeronautical and non- aeronautical revenue of BCIA recorded increases of 16.5% and 11.0% respectively.

Disappointed non- aeronautical business

The rentals income surged by 45.5% y/y, mainly due to additional rental income during 1H09 for around three more months from T3 which was commenced its operation on 26 March 2008. In spite of this, the total non-aeronautical revenue of BCIA represented a disappointed increase of 11% y/y only which we attributed to the 0.7% decrease of concession revenues. After the Beijing Olympics, enterprises started to shrink budget because of the downturn of economy, thus the concession revenues from advertising cut 7.6% y/y, which was mainly reflected on the decline in both advertising occupancy and rents of T2.

The other two concession revenues of retailing and restaurants also grew 7% y/y and 2% y/y only as the declining of the volume and the expenditure of foreign passengers.

Growth of operating expense begin to decelerate

For the first half year of 2009, the growth rate of operating expense of BCIA slowed down to 5.3% y/y, due to: 1) The decrease of aviation safety & security guard cost and repairs and maintenance after end of Olympics; 2）the Company has extended its estimated useful lives of assets, which would help to reduce the depreciation.

Risk

Economic situation get worse, airlines reduces the number of flights and air routes, the airport's operating income will be directly impacted. The economic crisis will also beat high-end customers` consuming capacity.

Second, other transportation methods such as high speed railway, highway will also divert some of its aviation passengers.

Unexpected incidents in the industry such as terrorism, flu etc.

Adjustment and Valuation

In total, we estimate in 2009 the growth rate of the Company's aircraft movements and passenger throughput will be 12% and 16%. According to changes, we revised our forecast on EBITDA per share in 2009 and 2010 to be HK$0.63 and HK$0.75 respectively.

Currently, the corresponding EBITDA per share for airports in Asia and Europe is 7 and 8 times each, China domestic airport companies` is 11. Our12-month target price of HK 6 is derived from 8 x 2009E EBITDA per share, “BUY” rating.

Financial Forecast

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