1H23 results in line with market expectations
Beijing Capital International Airport (BCIA) announced 1H23 results: Revenue climbed 80% YoY to Rmb1.99bn, and net profit attributable to shareholders equaled -Rmb1.04bn (vs. -Rmb1.41bn in 1H22), in line with our expectations.
Revenue from aeronautical business soared YoY, but slower than passenger throughput growth. In 1H23, BCIA’s aircraft takeoffs and landings increased 133% YoY to 175,937, while passenger throughput soared 318% YoY to 23.1mn. Revenue from aircraft takeoff and landing increased 99% YoY, and that from passenger services surged 337% YoY.
Aircraft movement fees declined slightly, mainly because the Civil Aviation Administration of China (CAAC) announced that the 10% increase in international aircraft movement fees for Chinese and foreign airlines at tier-1 and tier-2 airports would be suspended over May 1–December 31, 2023.
Revenue from non-aeronautical businesses recorded double-digit YoY growth in 1H23, with revenue from franchised retail business rising 298% YoY to Rmb155mn, mainly driven by recovering international passenger traffic. Revenue from advertising and restaurants rose 17% and 75% YoY.
The firm added a paid membership business for frequent travelers in August 2022. In 1H23, it recognized revenue of Rmb47.41mn from VIP services.
Cost control effective. In 1H23, BCIA’s operating costs equaled Rmb2.76bn, down 3% YoY excluding franchise management fees. Its costs remained stable despite business recovery, mainly thanks to a 13% YoY decline in utilities and power costs (heating fee standards were adjusted), a 3% YoY drop in aviation safety and security guard expenses, and a 4% decrease in property tax and other taxes.
Trends to watch Watch negotiation of DFS agreement and per-customer transactions.
BCIA’s passenger throughput continued to recover this summer, with domestic and international passenger throughput recovering to 67% and 34% of the pre-pandemic levels in July. The recovery rates were lower than its listed peers as Beijing Daxing International Airport diverted part of the customer traffic from BCIA. The firm’s duty-free shops have gradually resumed operations as international tourist traffic recovers. Regarding duty-free merchants, BCIA has not yet decided how to collect rent in the future. We suggest investors keep an eye on the abundance of duty-free goods, per-customer transactions, and progress in contract negotiations.
Financials and valuation
We lower our 2023 and 2024 earnings forecasts to -Rmb1.34bn from -Rmb229mn and to Rmb889mn from Rmb1.59bn, as we slightly lower our assumptions on the degree of recovery in passenger traffic and growth of non-aeronautical businesses. We assume the DFS agreement will still be executed according to the current contract, with the guaranteed rent being converted based on the recovery of international passenger traffic. The stock is trading at 19.0x 2024e P/E. We maintain an OUTPERFORM rating, but we cut our target price 26% to HK$5.3, implying 23x 2024e P/E (originally 18x, mainly considering the market’s increased preference for travel-related names) and offering 24% upside.
Risks
Slower-than-expected recovery of international routes; DFS contracts disappoint; higher-than-expected connected transaction costs.