HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

Shanghai International Airport / Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/shanghai-international-airport-co-ltd" target="_blank" data-smartkarma-citation="entities:6511:1" rel="noopener">Shanghai International Airport (600009 CH)</a> witnessed sustained strength on its domestic and cargo throughput in Sep, outperforming both <a href="https://www.smartkarma.com/entities/guangzhou-baiyun-international-airport" target="_blank" data-smartkarma-citation="entities:10819:1" rel="noopener">Guangzhou Baiyun International Airport (600004 CH)</a> and <a href="https://www.smartkarma.com/entities/beijing-capital-international-airport-bcia" target="_blank" data-smartkarma-citation="entities:10626:1" rel="noopener">Beijing Capital International Airport (BCIA) (694 HK)</a> by very significant margins. In fact, SIAC is the only airport among the big three to consecutive YoY growth in domestic passenger traffic in the last two months. In Sep, domestic aircraft movement surged 18.9% YoY and domestic passenger throughput grew 13.5% YoY, and both are impressive turnouts. In our view, the strong domestic performance, good demand during the "double festival" Golden Week and China International Import Expo to be held in Shanghai during 5-10 Nov should ensure continued strength in SIAC's traffic in 4Q20.

Shanghai International Airport (600009 CH) witnessed sustained strength on its domestic and cargo throughput in Sep, outperforming both Guangzhou Baiyun International Airport (600004 CH) and Beijing Capital International Airport (BCIA) (694 HK) by very significant margins. In fact, SIAC is the only airport among the big three to consecutive YoY growth in domestic passenger traffic in the last two months. In Sep, domestic aircraft movement surged 18.9% YoY and domestic passenger throughput grew 13.5% YoY, and both are impressive turnouts. In our view, the strong domestic performance, good demand during the "double festival" Golden Week and China International Import Expo to be held in Shanghai during 5-10 Nov should ensure continued strength in SIAC's traffic in 4Q20.

Shanghai International Airport (600009 CH): Best Momentum Against Peers in Sep

Guangzhou Baiyun International Airport / Equity Bottom-Up

There is full recovery in both domestic aircraft movement and passenger throughput at <a href="https://www.smartkarma.com/entities/guangzhou-baiyun-international-airport" target="_blank" data-smartkarma-citation="entities:10819:1" rel="noopener">Guangzhou Baiyun International Airport (600004 CH)</a> in Sep, which registered YoY growth of 8.5% and 0.7%, respectively. The figures suggested further strength in the domestic market and should reflect positively on a QoQ in GBIA's profitability improvement. Also, the initial figures for the Golden Week have pointed to a 4.9% higher daily aircraft movement and 8.2% higher daily passenger throughput than the average in Sep. We believe the rebound of international passenger will be an increasingly important driver for GBIA's traffic recovery over the next 12 months. For example, <a href="https://www.smartkarma.com/entities/china-southern-airlines-co-ltd" target="_blank" data-smartkarma-citation="entities:1078:1" rel="noopener">China Southern Airlines (1055 HK)</a> has already increased its international flights departing from Guangzhou from 16 in Sep to 20 in Oct. GBIA has also obtained approval for non-public issuance of A-shares to its parent to raise fresh equity of Rmb3.2bn, and we believe these are all positive developments for the company.

There is full recovery in both domestic aircraft movement and passenger throughput at Guangzhou Baiyun International Airport (600004 CH) in Sep, which registered YoY growth of 8.5% and 0.7%, respectively. The figures suggested further strength in the domestic market and should reflect positively on a QoQ in GBIA's profitability improvement. Also, the initial figures for the Golden Week have pointed to a 4.9% higher daily aircraft movement and 8.2% higher daily passenger throughput than the average in Sep. We believe the rebound of international passenger will be an increasingly important driver for GBIA's traffic recovery over the next 12 months. For example, China Southern Airlines (1055 HK) has already increased its international flights departing from Guangzhou from 16 in Sep to 20 in Oct. GBIA has also obtained approval for non-public issuance of A-shares to its parent to raise fresh equity of Rmb3.2bn, and we believe these are all positive developments for the company.

Guangzhou Baiyun Intl Airport (600004 CH): Sep Marked the First Dual YoY Growth

Quality-first, Business-perspective Strategy, Urbem (HK) Limited

Steven Chen

Quality-first, Business-perspective Strategy

Thematic (Sector/Industry)

<ul>
<li>China can be the first market to recover its travel industry post the pandemic;</li>
<li>We scan the industry in the search for decent-quality, decent-yield opportunities;</li>
<li>We limit ourselves to the widest-moat assets, which leaves us only two options in this market.</li>
</ul>


China can be the first market to recover its travel industry post the pandemic;
We scan the industry in the search for decent-quality, decent-yield opportunities;
We limit ourselves to the widest-moat assets, which leaves us only two options in this market.


Valuation Check-Up: Wide-Moat Assets Poised for China's Travel Recovery

The domestic traffic of <a href="https://www.smartkarma.com/entities/shanghai-international-airport-co-ltd" target="_blank" data-smartkarma-citation="entities:6511:1" rel="noopener">Shanghai International Airport (600009 CH)</a> has seen the best pick-up momentum when compared with the other two key Chinese airports. Its domestic aircraft movement rose an impressive 16.2% YoY and domestic passenger traffic increased 0.4% YoY in Aug. Moreover, it sustained the leadership in freight throughput with Aug marked the fifth consecutive month that freight volume achieved a YoY growth.We expect the outperformance of SIAC's share price against <a href="https://www.smartkarma.com/entities/beijing-capital-international-airport-bcia" target="_blank" data-smartkarma-citation="entities:10626:1" rel="noopener">Beijing Capital International Airport (BCIA) (694 HK)</a> and <a href="https://www.smartkarma.com/entities/guangzhou-baiyun-international-airport" target="_blank" data-smartkarma-citation="entities:10819:1" rel="noopener">Guangzhou Baiyun International Airport (600004 CH)</a> to sustain in 2H20. This is to be driven by faster resumption of international flights, the release of pent-up passenger demand during the National Day holidays and continued improvement in freight traffic.

The domestic traffic of Shanghai International Airport (600009 CH) has seen the best pick-up momentum when compared with the other two key Chinese airports. Its domestic aircraft movement rose an impressive 16.2% YoY and domestic passenger traffic increased 0.4% YoY in Aug. Moreover, it sustained the leadership in freight throughput with Aug marked the fifth consecutive month that freight volume achieved a YoY growth.We expect the outperformance of SIAC's share price against Beijing Capital International Airport (BCIA) (694 HK) and Guangzhou Baiyun International Airport (600004 CH) to sustain in 2H20. This is to be driven by faster resumption of international flights, the release of pent-up passenger demand during the National Day holidays and continued improvement in freight traffic.

Shanghai International Airport (600009 CH): Best in Domestic and Cargo Traffic in Aug

In Aug, <a href="https://www.smartkarma.com/entities/guangzhou-baiyun-international-airport" target="_blank" rel="noopener">Guangz</a><a href="https://www.smartkarma.com/entities/guangzhou-baiyun-international-airport" target="_blank" rel="noopener">hou Baiyun International Airport (600004 CH)</a> recorded the first YoY growth in domestic aircraft with an 8.8% YoY increase. This is an encouraging figure as it reflected solid underlying travel demand. Although domestic passenger throughput was still in the negative zone (-7.3% YoY), it has further narrowed from -13.1% YoY in Jul. Overall, we consider GBIA's Aug traffic a solid show.In our view, the next key datapoint to watch is the National Day holiday traffic figure, since the Sep figures are likely to be less indicative right after the peak summer travel season. We believe the National Day holiday figures for GBIA are likely to be very solid, given the pent-up demand, government's push for "internal circulation" and impending re-opening of personal travel permit to Macau.

In Aug, Guangzhou Baiyun International Airport (600004 CH) recorded the first YoY growth in domestic aircraft with an 8.8% YoY increase. This is an encouraging figure as it reflected solid underlying travel demand. Although domestic passenger throughput was still in the negative zone (-7.3% YoY), it has further narrowed from -13.1% YoY in Jul. Overall, we consider GBIA's Aug traffic a solid show.In our view, the next key datapoint to watch is the National Day holiday traffic figure, since the Sep figures are likely to be less indicative right after the peak summer travel season. We believe the National Day holiday figures for GBIA are likely to be very solid, given the pent-up demand, government's push for "internal circulation" and impending re-opening of personal travel permit to Macau. 

Guangzhou Baiyun Intl Airport (60004 CH): Finally, in Aug, YoY Growth...

China

Shanghai International Airport Co., Ltd. operates Pudong Airport and Hongquiao airport in Shanghai.   The Company provides a full range of services including air traffic control, terminal management, cargo handling, advertising, space rental, and other related services.

Shanghai International Airport (600009 CH)

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Shanghai International Airport (600009 CH)