Shanghai International Airport – SIA (600009.CH)
Epidemic impacts short-term 1H Earning, but Q3 saw good recovery
China | Airport | Company Update
CMP CNY 69.42 (Closing price as at 9 October)
TARGET CNY 81 (+17%)
SIA Recorded First Loss since the Listing under the Impact of the Epidemic
Under the impact of the COVID-19 epidemic, Shanghai International Airport (SIA) recorded revenue of RMB2.47 billion in 2020H1, down by 54.7% yoy; The net loss attributable to listed shareholders was RMB386 million, which was the Company`s first loss in past 26 years since listed. The basic loss per share was RMB0.2, and the profit in the same period last year was RMB2.7 billion; The net profit in Q1 was RMB81 million with an increase of 94% yoy, and that in Q2 was -RMB466 million with a decrease of 136% yoy.
Both aeronautical and non-aeronautical revenue has dropped sharply, same with the investment gains
In H1, the passenger throughput dropped by approximately 68% yoy, the cargo and mail throughput remained flat yoy, and the aircraft movements dropped by 46% yoy, SIA has the highest proportion of international passengers (43%), thus it has been suppressed by the spread of overseas epidemic more severely, and its international traffic in Q2 was close to zero (-99%yoy). Dragged by this, in H1 of 2020, the service fee revenue of passenger as well as cargo and mail decreased by 70% yoy, and aircraft service fee revenue decreased by 43% yoy. Finally, the Company`s aeronautical revenue dropped by 58.5% yoy to RMB840 million.
In terms of non-aeronautical business, due to a significant decrease in tax-free sales in H1, the Company adopted conservative accounting standards for single-month rental revenue, resulting in a decline in non-aeronautical revenue, which was RMB1.63 billion, down by 52.5% yoy.
Due to the decrease in the number of passengers, the business volume of the major shareholding companies simultaneously fell into a downturn, thus the profits they contributed were also affected. The investment gains dropped by 66% yoy to 186 million.
D&A of New Capacity Increases Fixed Costs Rigidly
Since Pudong Satellite Hall was put into use in September last year, the costs of depreciation and amortization as well as operation and maintenance in 2020H1 have increased significantly yoy. As a result, the total costs increased by 33.3% yoy to RMB3.172 billion, of which the D&A reached RMB636 million, up by 83% yoy. We expect the drag caused by the D&A to weaken in Q4. The apparent decline in revenue and the rigidness of cost expenditures caused the operating cash flow to decrease in H1, from the net inflow of RMB2.2 billion in the same period of last year to the net outflow of RMB640 million.
Decline Narrowed Significantly in Q3
Benefiting from the improvement of the domestic epidemic situation, the domestic air traffic volume has continued to improve since Q3: In July, the yoy decrease in the Company`s domestic aircraft movements and passenger throughput narrowed down significantly to 6.10% and 15.07%, respectively. In August, the yoy growth rates of domestic aircraft movements and passenger throughput turned positive, increasing by 16.22% and 0.44%, respectively. Domestic travel demand is strong during the National Day and Mid-Autumn Festival, and the domestic passenger throughput is expected to continue to increase. The passenger throughput on international routes remained sluggish in August, but the cargo and mail throughput was relatively good. We expect that with the advancement of vaccine R&D and China`s gradual relaxation of entry and exit restrictions, the international passenger traffic will bottom out and rebound slowly.
Taking into account the short-term outbreak affecting the Company`s aviation and non-aviation business, as well as cost pressure, we have revised the EBITDA per share forecast in 2020/2021/2022. The target price is revised to RMB 81, with the estimation of a 77/27/17.6x multiple respectively, and the “Accumulate” rating is maintained. (Closing price as at 9 October)
PHILLIP RESEARCH STOCK SELECTION SYSTEMS
|>+20%||Buy||1||>20% upside from the current price|
|+5% to +20%||Accumulate||2||+5% to +20%upside from the current price|
|-5% to +5%||Neutral||3||Trade within ± 5% from the current price|
|-5% to -20%||Reduce||4||-5% to -20% downside from the current price|
|<-20%||Sell||5||>20%downside from the current price|
We do not base our recommendations entirely on the above quantitative return bands. We consider qualitative factors like (but not limited to) a stock`s risk reward profile, market sentiment, recent rate of share price appreciation, presence or absence of stock price catalysts, and speculative undertones surrounding the stock, before making our final recommendation
This publication is prepared by Phillip Securities (Hong Kong) Ltd (“Phillip Securities”). By receiving or reading this publication, you agree to be bound by the terms and limitations set out below.
This publication shall not be reproduced in whole or in part, distributed or published by you for any purpose. Phillip Securities shall not be liable for any direct or consequential loss arising from any use of material contained in this publication.
The information contained in this publication has been obtained from public sources which Phillip Securities has no reason to believe are unreliable and any analysis, forecasts, projections, expectations and opinions (collectively the “Research”) contained in this publication are based on such information and are expressions of belief only. Phillip Securities has not verified this information and no representation or warranty, express or implied, is made that such information or Research is accurate, complete or verified or should be relied upon as such. Any such information or Research contained in this publication is subject to change, and Phillip Securities shall not have any responsibility to maintain the information or Research made available or to supply any corrections, updates or releases in connection therewith. In no event will Phillip Securities be liable for any special, indirect, incidental or consequential damages which may be incurred from the use of the information or Research made available, even if it has been advised of the possibility of such damages.
Any opinions, forecasts, assumptions, estimates, valuations and prices contained in this material are as of the date indicated and are subject to change at any time without prior notice.
This material is intended for general circulation only and does not take into account the specific investment objectives, financial situation or particular needs of any particular person. The products mentioned in this material may not be suitable for all investors and a person receiving or reading this material should seek advice from a financial adviser regarding the suitability of such products, taking into account the specific investment objectives, financial situation or particular needs of that person, before making a commitment to invest in any of such products.
This publication should not be relied upon as authoritative without further being subject to the recipient`s own independent verification and exercise of judgment. The fact that this publication has been made available constitutes neither a recommendation to enter into a particular transaction nor a representation that any product described in this material is suitable or appropriate for the recipient. Recipients should be aware that many of the products which may be described in this publication involve significant risks and may not be suitable for all investors, and that any decision to enter into transactions involving such products should not be made unless all such risks are understood and an independent determination has been made that such transactions would be appropriate. Any discussion of the risks contained herein with respect to any product should not be considered to be a disclosure of all risks or a complete discussion of such risks.
Nothing in this report shall be construed to be an offer or solicitation for the purchase or sale of a security. Any decision to purchase securities mentioned in this research should take into account existing public information, including any registered prospectus in respect of such security.
Disclosure of Interest
Analyst Disclosure: Neither the analyst(s) preparing this report nor his associate has any financial interest in or serves as an officer of the listed corporation covered in this report.
Firm`s Disclosure: Phillip Securities does not have any investment banking relationship with the listed corporation covered in this report nor any financial interest of 1% or more of the market capitalization in the listed corporation. In addition, no executive staff of Phillip Securities serves as an officer of the listed corporation.
If Distribution is to Australian Investors
This report is produced by Phillip Securities (Hong Kong) Ltd and is being distributed in Australia by Phillip Capital Limited (Australian Financial Services License No. 246827). This report contains general securities advice and does not take into account your personal objectives, situation and needs. Please read the Disclosures and Disclaimers set out above. By receiving or reading this report, you agree to be bound by the terms and limitations set out above. Any failure to comply with these terms and limitations may constitute a violation of law. This report has been provided to you for personal use only and shall not be reproduced, distributed or published by you in whole or in part, for any purpose. If you have received this report by mistake, please delete or destroy it, and notify the sender immediately.