Research Report


章晶小姐 (Zhang Jing)


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.

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SIA (600009.CH) - Expectful Non-aeronautical Business

Friday, February 09, 2018 Views7481
Recommendation on  9 February 2018
Recommendation Accumulate
Price on Recommendation Date $47.710
Target Price $52.100

- Nearly 30% Increase in Profit in the First Three Quarters of 2017

- The Gross Margin Rises by 3.8 ppts to 48.2%

- Revenue from Aeronautical Business Stably Slightly Rises

- The Non-aeronautical Business Continually Increases strongly

Investment Thesis

Riding on the "single-terminal double-runway" to the operational mode of "multiple-terminal multiple-runway" path, the Company will starts its new round of stable growth. We increase the Company's EBITDA per share to RMB2.8 in 2017 and RMB3.25 in 2018, respectively, with the estimation of a 19/16x multiple during the two years. The target price is increased to RMB52.1 and the "Accumulate" rating is maintained. (Closing price as at 7 Feb 2018)

Nearly 30% Increase in Profit in the First Three Quarters of 2017

Shanghai Airport recorded revenues of RMB6,010 million in the first three quarters of 2017, up by 14.9% YoY; the net profit attributable to the parent company stood at RMB2,690 million, up by 27.9% YoY; its basic EPS was RMB1.4, up by 28% YoY. In Q3, the revenue rose by 15% YoY, and the net profit attributable to the parent company soared by 43% YoY, an obvious increase in result growth compared with 21% of H1. The reason is that benefiting from recovery of oil price, the oil company, 40% of whose shares are held by Shanghai Airport, had driven the return on investment to increase by 92% to RMB0.3 billion.

The Gross Margin Rises by 3.8 ppts to 48.2%.

After the Terminal Building T1 Reconstruction Project was completed, the Company's cost side has been increasing stably. The operating cost of the first three quarters of the Company only rose by 7.4%, far lower than the growth rate of revenue, and thus the gross margin increased by 3.8 ppts to 48.2%. The three-expense ratio increased by 1.3 ppts to 2.03% YoY due to decrease of interest revenue, and the final operating profit rate still increased by 2.5 ppts YoY..

Revenue from Aeronautical Business Stably Slightly Rises

In the first three quarters, the aircraft movements reached 370,500 sorties, slightly up by 3.3% YoY. Specifically, the number of domestic, international and regional airways increased by 2.7%, increased by 4.8% and decreased by 2.2%, respectively. The passenger throughput amounted to 52,493,500, increased by 5.3% YoY. Specifically, the number of domestic, international and regional airways increased by 8.2%, increased by 3.6% and decreased by 1.7%, respectively. The cargo and mail throughput amounted to 337,000 tons, up by 12.8% YoY. Specifically, the number of international airways obviously grew faster -- still a double-digit number.

We found that, the aircraft movements of international airways had tended to increase month by month, while those of domestic airways had declined month by month. This reflects that the airport's increased airway resources had been mostly distributed to international airways. Moreover, the number of passengers increased at a growth rate 2 ppts higher than the number of aircraft movements did, indicating an obvious aircraft upsizing. This characteristic is reflected more obviously in domestic airways.

In Q4, the aircraft movements, the passenger throughput, and the cargo and mail throughput increased by 4.2%, 8.4%, and 5.7%, respectively. The aircraft movements and passenger throughput of international airways still grew at a high speed, and at the same time, regional airways started to recover.

Recently aiming at increasing the on-schedule rate, Civil Aviation Administration of China put forward the measures on flight limitation, limiting the growth of aircraft movements of the Company to a certain extent. Yet, considering the Company can adopt such response measures as adjusting the flight structure and increasing the proportions of international flights and wide-bodied aircraft and has ample room for productivity enhancement, we expect that the negative influence would be quite limited.

The Non-aeronautical Business Continually Increases

Benefiting from the expansion of commercial space and the increase of the proportion of passengers of international airways after the full commissioning of the Terminal Building T1 Reconstruction Project, the revenue from the non-aeronautical business of the Company soared to be more than that of aeronautical business in 2017at one go. The duty-free business contract of the Company will expire in March 2018, and it is expected that the new commission percentage in the new round of bidding will rise from 25% to about 45%, greatly enhancing the revenue of non-aeronautical business. Moreover, after the S1/S2 satellite hall is completed and put into operation in 2019, the total covered area of terminal building will rise by 69%, the passenger throughput will exceed 80 million, and the resulting expansion of commercial space and increase of the number of consumers will be solid support for the next round of result growth of the Company.


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