摩根士丹利-中国-航空业-中国航空业投资策略：增持SIAC与SACL减持GBIA与BCIA-2019.2.17-55页.pdf

Grace.LEdward.XJunYi.YIn-LineMORGAN STANLEY ASIA LIMITED+Grace LiRESEARCH ASSOCIATE+852 3963-2843Edward H Xu,CFAEQUITY ANALYST+852 2239-1521JunYi YuRESEARCH ASSOCIATE+852 2239-7817Morgan Stanley appreciates your support inthe 2019 Institutional Investor All-AsiaResearch Team Survey.Request your ballot.Hong Kong/China Transportation&InfrastructureAsia PacificIndustryViewChina AirportsChina Airports|Asia Pacific Asia PacificOverweight SIAC and SACL;Underweight GBIA and BCIADespite slower GDP growth and capacity constraints near-term,we remain positive on long-term demand trends forChinas airports and see potential upside from sustained trafficmix improvement and non-aeronautical business.For now,weprefer SIAC and SACL on fundamental and valuation grounds.We remain positive on long-term demand.Airports have a wide economic moatwith a natural monopoly in local markets.Amid general concerns of slowing GDPgrowth in China,we expect aviation demand to decrease mildly at major airportsin 2019-20.However,penetration is still low and per capita income is increasing.Traffic mix should continue to improve with higher international pax traffic,so wesee further room for both ASP and margin expansion for SIAC,SACL,and GBIA.even though we see ongoing near-term capacity constraints:The Civil AviationAdministration of China(CAAC)continues to control slot growth in order toimprove punctuality at major airports.However,the use of larger aircraft andhigher load factors would be positive for airports against the capacity bottleneck.Non-aeronautical business a future driver:We believe the ability to monetizepassenger traffic is a key driver for the future growth of Chinas airports.Theirpercentages of both non-aeronautical revenue and per capita spending are smallrelative to major global airports.Thus,we see much potential for furtherearnings upside in the group.We raise our forecasts of non-aeronautical revenuefor major airports by an average of 4%p.a.in 2018-20.Key risks from capex:There is limited capex pressure for SIAC after the launch ofits satellite terminal in 2H19,but we see capex risks for SACL from theconstruction of its satellite terminal,for GBIA from its Phase 3 expansion project(two runways and one terminal),and for BCIA from Daxing Airport burden.Our top picks in the group remain SIAC.We expect SIAC to generate thestrongest earnings growth at 27%in 2019 in the peer group,despite potentialcost pressure following the launch of the satellite terminal in 2H19.ROE standshigh at 17%in 2019e,vs.6-9%for peers.Valuation is attractive.and SACL:We like SACL for its robust traffic growth and traffic mix change,ledby market share gains in the region given traffic saturation in Hong Kong airport,as well as support from the strong local economy.Valuation is still cheap.We maintain our UW ratings on GBIA.We think 4Q18 and 1Q19 results may stillsurprise the market on the downside following the recent rally(+24%YTD).and BCIA:We cite operating deleverage led by traffic diversion.With this report,Grace Li assumes primary coverage of SIAC,SACL,GBIA and BCIA.Exhibit 1:Whats Changed:SIAC lower target reflectsmore conservative estimate for 2020 following satelliteterminal launch;SACL higher international traffic mixassumptions boost target;GBIA higher non-aeronautical revenue leads to increased estimates,lifting target;BCIA reductions reflect traffic diversionfrom the Daxing airportNet profit change2018E2019E2020ESIAC2.8%3.2%-5.2%SACL2.8%-0.1%-1.6%GBIA8.6%10.6%15.8%BCIA-2.0%-3.8%-2.3%PTNewOldChangeSIAC65.0068.37-5%SACL9.909.346%GBIA10.709.789%BCIA6.307.10-11%RatingUpsideSIACOW23%SACLOW19%GBIAUW-14%BCIAUW-15%Source:Morgan Stanley Research estimatesMorgan Stanley does and seeks to do business withcompanies covered in Morgan Stanley Research.As aresult,investors should be aware that the firm may have aconflict of interest that could affect the objectivity ofMorgan Stanley Research.Investors should considerMorgan Stanley Research as only a single factor in makingtheir investment decision.For analyst certification and other important disclosures,refer to the Disclosure Section,located at the end of thisreport.+=Analysts employed by non-U.S.affiliates are not registered withFINRA,may not be associated persons of the member and may notbe subject to NASD/NYSE restrictions on communications with asubject company,public appearances and trading securities held bya research analyst account.1February 17,2019 05:26 PM GMT Key ChartsExhibit 2:We expect pax traffic growth for Chinas major airports tonormalize in 2019-20e-20%-15%-10%-5%0%5%10%15%20%20152016201720182019E2020EPassenger Throughput GrowthSIACBCIAGBIASACLSource:CAAC,Morgan Stanley Research estimatesExhibit 3:However,long-term aviation demand looks positive givenstill low penetration-0.20.40.60.81.01.21.41.62010 2011 2012 2013 2014 2015 2016 2017 20182037EAnnual Flights per Capita in ChinaSource:CAAC,National Bureau of Statistics,Airbus estimate for 2037Exhibit 4:Rising non-domestic pax traffic is a key trend.0%10%20%30%40%50%60%201120122013201420152016201720182019E2020E%of Intl Pax ThroughputSIACBCIAGBIASACLSource:Company data,Morgan Stanley Research estimates.International passengers including regional(Hong Kong/Macau/Taiwan).2011-15 data for SACL do not include regional passengers per SACLdisclosures.Exhibit 5:while non-aeronautical revenue is the major growth area0%10%20%30%40%50%60%70%80%SIACBCIAGBIASACLJATHKIA AucklandAirportFraport SydneyAirportAOT%of Non-aeronautical Revenue(2018E)ChinaGlobalSource:Company data,Morgan Stanley Research estimates.For HKIA,2018 data refers to the year ended 31March 2018 based on company disclosure.SACL includes commercial rental in aeronautical revenue.Exhibit 6:Upside Potential in Chinas Airport Stocks-20%-15%-10%-5%0%5%10%15%20%25%30%SIACSACLGBIABCIAUpside of China Airport StocksSource:Morgan Stanley Research estimatesExhibit 7:Net profit growth in 2019e consistent with our stockpreference-40%-30%-20%-10%0%10%20%30%40%SIACSACLGBIABCIANet Profit Growth(2019E)Source:Morgan Stanley Research estimates2 Investment Thesis Whats Priced InThree of Chinas airport stocks corrected in 2018 SACL down 10.5%,BCIA down 29.5%,and GBIA down 31.6%(vs.-24.6%for the SHCOMP and-13.5%for the HSCEI).Thisfollowed the removal of the airport fee refund announced in June 2018.The exceptionwas SIAC(+12.8%in 2018),which provided a relative safe haven for investors with noexposures to airport fees or traffic diversion.GBIA:We think the recent rally in GBIA shares(+24%YTD vs.+9%for the SHCOMP)isoverdone.The market appears too optimistic about duty-free sales and costimprovement in the second year of T2s operation.While the minimum guaranteed duty-free payment suggests spending of Rmb120 per head,we think consensus net profitforecasts for 2019 suggest Rmb165 per head(vs.our estimate of Rmb131),according toour sensitivity analysis below.However,we think it is still early to turn positive on the stock because 4Q18 and 1Q19results may still surprise on the downside.In particular,the high cost base may only kickin after 2Q19,and our earnings estimates still represent YoY declines of 24.3%for 2018and 22.8%for 2019.Exhibit 8:China Airports:Share Performance-60%-50%-40%-30%-20%-10%0%10%20%30%40%50%Jan-18Mar-18May-18Jul-18Sep-18Nov-18Jan-19Share Performance since Jan-18SACLSIACGBIABCIASource:Thomson Reuters,Morgan Stanley ResearchExhibit 9:Consensus earnings estimate revision8008509009501,0001,0501,100-1,0002,0003,0004,0005,0006,000Jan-18Apr-18Jul-18Oct-18Jan-19Rmb mnConsensus Earnings Estimate Revision(FY19)SIACBCIAGBIASACL(RHS)Source:Thomson Reuters,Morgan Stanley ResearchExhibit 10:GBIA:Sensitivity of 2019e net profit(Rmb mn)Per head spending(Rmb)9331201311451651802002209.08929199551,0051,0431,0931,1439.28999269621,0141,0521,1031,1549.49059339701,0221,0611,1131,165Pax(mn)9.69119399781,0311,0711,1241,1779.79179469851,0391,0801,1341,1899.99249549931,0481,0901,1451,20110.19319611,0011,0581,1001,1561,213Source:Morgan Stanley Research estimates.Note:Pax here refers to of non-domestic passengerthroughput in 2019e to calculate per head spending for 2 trips(departure and arrival).Exhibit 11:GBIA:Sensitivity of changes in 2019e net profit from ourbase casePer head spending(Rmb)01201311451651802002209.0-4%-1%2%8%12%17%23%9.2-4%-1%3%9%13%18%24%9.4-3%0%4%10%14%19%25%Pax(mn)9.6-2%1%5%11%15%20%26%9.7-2%1%6%11%16%22%27%9.9-1%2%6%12%17%23%29%10.10%3%7%13%18%24%30%Source:Morgan Stanley Research estimates.Note:Pax here refers to of non-domestic passengerthroughput in 2019e to calculate per head spending for 2 trips(departure and arrival).3BCIA:Though the market has started to price in potential traffic dilution after thelaunch of the Daxing Airport(-11%YTD vs.+11%for the HSCEI),we think the potentialdrag on earnings from fixed costs as well as the risk of international traffic cut have notbeen factored in.Order of PreferenceIn the context of lower oil prices and Rmb appreciation against the USD,we preferChinese airline stocks over airports:While these macro tailwinds could lead to strongearnings improvement for airline companies,they should have limited impact on Chinasairports,in our view.However,we are positive on long-term demand for aviation inChina,and think Chinas airports are good stocks to own,given lower valuationcompared with global peers.Our top picks in our coverage of this group remain SIAC and SACL,given positive growthpotential and earnings visibility among domestic peers.Valuation for both stocks is stillattractive,at a discount of over 20%to global peers.Exhibit 12:Stock PreferenceSIACSACLGBIABCIA600009.SS000089.SZ600004.SS0694.HKRatingOWOWUWUWTrading CurrencyCNYCNYCNYHKDPrice Target65.009.9010.706.30Current Price52.708.3012.507.43Upside/(Downside)(%)23%19%-14%-15%Market Cap(in USD mm)14,9942,5133,8194,101Average Daily Traded Vol(in USD mm)46122510Valuation Multiples at Last CloseFY19eP/E19.2x19.9x27.7x13.6xEV/EBITDA13.1x9.3x10.6x6.7xFY20eP/E19.7x18.7x20.6x19.5xEV/EBITDA11.8x9.5x9.1x8.0 xStock Price Performance1 Month7%7%28%10%3 Month6%5%22%(14%)1 Year20%(0%)(20%)(34%)YTD4%7%24%(11%)Benchmark(YTD)9%9%9%11%Source:Morgan Stanley Research,Thomson Reuters.e=Morgan Stanley Research estimates.Benchmark:SHCOMP for A-shares,HSCEI for H-shares.4 Key ChangesEarnings estimate changesSIAC:We tweak our net profit forecasts+2.8%for 2018,+3.2%for 2019,and-5.2%for2020.We now have more conservative cost assumptions for 2020e following thelaunch of the satellite terminal.SACL:We adjust our net profit forecasts for SACL mildly:+2.8%for 2018,-0.1%for2019,and-1.6%for 2020.We cite better-than-expected international traffic growth in2018.GBIA:We raise net profit forecasts 8.6%for 2018,10.6%for 2019,and 15.8%for 2020.This reflects higher non-aeronautical revenues.BCIA:We cut our net profit forecasts 2.0%for 2018,3.8%for 2019,and 2.3%for 2020,led by more significant traffic cut following the slot allocation plan announcementearlier.Price target changesSIAC and BCIA down 5%and 11%,respectively:This reflects earnings estimate cuts.SACL and GBIA up 6%and 9%,respectively:This is led by higher revenueassumptions.Exhibit 13:Whats ChangedNet profit change2018E2019E2020ESIAC2.8%3.2%-5.2%SACL2.8%-0.1%-1.6%GBIA8.6%10.6%15.8%BCIA-2.0%-3.8%-2.3%PTNewOldChangeSIAC65.0068.37-5%SACL9.909.346%GBIA10.709.789%BCIA6.307.10-11%RatingUpsideSIACOW23%SACLOW19%GBIAUW-14%BCIAUW-15%Source:Morgan Stanley Research estimates5Ratings unchangedWe maintain OW ratings on SIAC and SACL:Our revised price targets suggest 23%and19%upside potential.We stay UW on GBIA and BCIA:Our revised price targets suggest 14%and 15%downside potential.Valuation ComparisonComparison among Chinas airports:Relatively,SIACs forward P/E(at 19.2x for 2019e)isthe lowest among A-share peers.However,it carries the highest EV/EBITDA multiple(13.1x for 2019e),mainly because it has the best asset quality and thus generatessuperior returns,along with favorable traffic mix(51%non-domestic pax in 2018 vs.100%terminal utilization,we see little bottleneckhere given continuous digitization of check-in and immigration processes to streamlinethe overall customer experience.Exhibit 28:High runway utilization for Chinas major airports0%20%40%60%80%100%BCIAGBIASACLSIACRunway Utilization20182019ESource:Company data,Morgan Stanley Research estimatesExhibit 29:Peak-hour handling at present0102030405060708090100BCIASIACGBIAHKIASACLPeak Hour HandlingSource:Company data,Morgan Stanley Research11 External capacity constraints1)Ongoing slot control by the CAACIn September 2017,the CAAC issued new measures to improve punctuality by cuttingcertain slots at SIAC and BCIA in the winter-2017 and summer-2018 seasons.Thisfollowed continued low punctuality at the major airports that compromised overallservice quality.In September 2018,the CAAC again published slot allocation policy,covering the 2018 winter season,limiting slot addition at major airports within 3%.Exhibit 30:Terminal utilization well above 100%for major airports0%50%100%150%200%250%201120122013201420152016201720182019ETerminal UtilizationSIACBCIAGBIASACLGBIA T2launchedSACL T3launchedSIACSatelliteTerminalto launchSource:Company data,Morgan Stanley Research estimatesExhibit 31:China airports:capacity and utilization20112012201320142015201620172018Terminal capacity(000)82,50082,50082,50082,50082,50082,50082,50082,500Passenger Throughput(000)78,67581,92983,71286,12889,93994,39395,786100,983No.of Runways33333333Aircraft Movements(000)533557567582590606597614Flight/runway(000)178186189194197202199205Utilization-terminal95%99%101%104%109%114%116%122%Utilization-runway87%91%92%95%96%99%97%100%Terminal capacity(000)60,00060,00060,00060,00060,00060,00060,00060,000Passenger Throughput(000)41,45344,88047,19051,68860,09866,00270,00174,007No.of Runways33334444Aircraft Movements(000)340358368399445476492501Flight/runway(000)113119123133111119123125Utilization-terminal69%75%79%86%100%110%117%123%Utilization-runway66%70%72%78%72%77%80%81%Terminal capacity(000)35,00035,00035,00035,00035,00035,00035,00080,000Passenger Throughput(000)45,04048,30952,45054,78055,20959,73665,80769,745No.of Runways22223333Aircraft Movements(000)349372394412410435465477Flight/runway(000)175186197206137145155159Utilization-terminal129%138%150%157%158%171%188%87%Utilization-runway85%91%96%101%80%85%91%93%Terminal capacity(000)28,00028,00045,00045,00045,00045,00045,00045,000Passenger Throughput(000)28,24629,57032,26836,27339,72241,97145,61149,347No.of Runways22222222Aircraft Movements(000)224240257286305319340356Flight/runway(000)112120129143153159170178Utilization-terminal101%106%72%81%88%93%101%110%Utilization-runway56%60%64%72%76%80%85%89%Beijing Capital AirportShanghai Pudong AirportShenzhen AirportGuangzhou Baiyun AirportSource:Company data,Morgan Stanley Research12Though overall punctuality improved significantly in 2018,especially for SIAC and BCIA,we think the CAACs slot control and goal of better punctuality could remain in the nearfuture.2)Airspace limitation and congestionUnlik