HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

Beijing Capital International Airport (BCIA) / Equity Bottom-Up

Beijing Capital International Airport (BCIA)

<ul>
<li>Long <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 short <a href="https://www.smartkarma.com/entities/air-china-ltd-h" target="_blank" data-smartkarma-citation="entities:8239:1" rel="noopener">Air China Ltd (H) (753 HK)</a> strategy should bring in good sector-neutral returns over the next 12 months. </li>
<li>BCIA will return to profit next year, fuelling the rebound of its share price. Air China, however, may face uncertainties related to stronger USD and higher-than-expected US interest rates.</li>
<li>Higher duty-free sales for BCIA should propel earnings outlook. BCIA's P/B is well below the 5-year average, while Air China has already returned to the historical average level.</li>
</ul>


Long Beijing Capital International Airport (BCIA) (694 HK), and short Air China Ltd (H) (753 HK) strategy should bring in good sector-neutral returns over the next 12 months. 
BCIA will return to profit next year, fuelling the rebound of its share price. Air China, however, may face uncertainties related to stronger USD and higher-than-expected US interest rates.
Higher duty-free sales for BCIA should propel earnings outlook. BCIA's P/B is well below the 5-year average, while Air China has already returned to the historical average level.


China Pair Trade: Long BCIA (694 HK), Short Air China (753 HK)

Greater China Equity Long/Short Analyst

Eric Chen

<ul>
<li>The worst is behind Beijing Capital International Airport. We believe it is on track to achieve breakeven on quarterly basis in 2H24.</li>
<li>We see recent parking fee hikes at Daxing Airport as a signal that more will come, which is not in the price and can bring in extra option value.</li>
<li>Boom-And-Bust in China property sector is behind the airport’s share price cycle. The airport is at the cusp of a steady recovery driving mean reversion of valuation .</li>
</ul>


The worst is behind Beijing Capital International Airport. We believe it is on track to achieve breakeven on quarterly basis in 2H24.
We see recent parking fee hikes at Daxing Airport as a signal that more will come, which is not in the price and can bring in extra option value.
Boom-And-Bust in China property sector is behind the airport’s share price cycle. The airport is at the cusp of a steady recovery driving mean reversion of valuation .


Beijing Capital International Airport: On Track to Break Even

<ul>
<li>Market's muted response to the airport's worse-than-expected 1H24 losses suggest investors are looking beyond.</li>
<li>While non-aviation businesses will remain under pressure in the near-term, potential for earnings growth from fare hike could be significant and is not at all reflected at current valuation.</li>
<li>Free cash flow turning positive in 2024 also open to door for restoring dividend payments, which will be another catalyst for stock re-rating. Risk reward payoff gets increasingly positive.   </li>
</ul>


Market's muted response to the airport's worse-than-expected 1H24 losses suggest investors are looking beyond.
While non-aviation businesses will remain under pressure in the near-term, potential for earnings growth from fare hike could be significant and is not at all reflected at current valuation.
Free cash flow turning positive in 2024 also open to door for restoring dividend payments, which will be another catalyst for stock re-rating. Risk reward payoff gets increasingly positive.   


BCIA (694 HK): Risk Reward Payoff Gets Increasingly Attractive

<ul>
<li>Recent newsflow and company results suggest China outbound travel is on track to recover to pre-pandemic level by the end of this year.</li>
<li>China airports have different exposures to outbound travel, which largely determines the scale of their duty-free shopping business and earnings upside amidst this recovery cycle.</li>
<li>Beijing Capital Airport offers best risk/return profile among listed China airports in our view as current valuation does not fully capture even a conservative scenario of recovery in outbound travel.</li>
</ul>


Recent newsflow and company results suggest China outbound travel is on track to recover to pre-pandemic level by the end of this year.
China airports have different exposures to outbound travel, which largely determines the scale of their duty-free shopping business and earnings upside amidst this recovery cycle.
Beijing Capital Airport offers best risk/return profile among listed China airports in our view as current valuation does not fully capture even a conservative scenario of recovery in outbound travel.


China Airports: Beijing Capital Airport Offers Best Risk/Return Payoff

Thematic (Sector/Industry)

<ul>
<li>Various statistics suggested that China's tourism and hospitality industry has staged a significant recovery during the 2024 CNY holidays, with traffic surging high double-digit.</li>
<li>While consumers are more cautious about retail product spending, they are willing to spend more on traveling. Such a trend will continue to bode well for the sector.</li>
<li>We like OTAs including <a href="https://www.smartkarma.com/entities/tongcheng-travel-holdings-ltd" target="_blank" data-smartkarma-citation="entities:27363:1" rel="noopener">Tongcheng Travel (780 HK)</a> and <a href="https://www.smartkarma.com/entities/trip-com-group-ltd-23a341d0-4f63-4175-a8c5-ee990906cacd" target="_blank" data-smartkarma-citation="entities:36424:1" rel="noopener">Trip.com (9961 HK)</a> despite their YTD surge in share prices. Meanwhile, <a href="https://www.smartkarma.com/entities/air-china-ltd-h" target="_blank" data-smartkarma-citation="entities:8239:1" rel="noopener">Air China Ltd (H) (753 HK)</a> stays as the top pick.</li>
</ul>


Various statistics suggested that China's tourism and hospitality industry has staged a significant recovery during the 2024 CNY holidays, with traffic surging high double-digit.
While consumers are more cautious about retail product spending, they are willing to spend more on traveling. Such a trend will continue to bode well for the sector.
We like OTAs including Tongcheng Travel (780 HK) and Trip.com (9961 HK) despite their YTD surge in share prices. Meanwhile, Air China Ltd (H) (753 HK) stays as the top pick.


China Tourism and Hospitality Industry: Roundup of a Solid CNY

China

Beijing Capital International Airport Company Limited operates both aeronautical and non-aeronautical business in the Beijing airport.  The Company provides aircraft movement and passenger service facilities, safety and security services, fire-fighting services, and ground handling services.  In addition, Beijing Capital operates duty free and other retail shops and leases properties.

Beijing Capital International Airport (BCIA) (694 HK)

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52-week Range	0.00 - 0.00
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Beijing Capital International Airport (BCIA) (694 HK)

China Pair Trade: Long BCIA (694 HK), Short Air China (753 HK)

BCIA's profit rebound and duty-free sales recovery should drive returns, while Air China faces stronger USD and high US interest rates. These...

Osbert Tang, CFA

Beijing Capital International Airport: On Track to Break Even

Beijing Capital International Airport is poised for a steady recovery, with potential for breakeven by 2H24 and paving the way for mean reversion...

Eric Chen

BCIA (694 HK): Risk Reward Payoff Gets Increasingly Attractive

Market's muted response to weaker-than-expected 1H24 preliminary results suggest investors are looking beyond. Potential price hikes and resumption...

Eric Chen

China Airports: Beijing Capital Airport Offers Best Risk/Return Payoff

China outbound travel is set to recover to pre-pandemic levels by year-end, with Beijing Capital Airport offering the best risk/return profile...

Eric Chen

China Tourism and Hospitality Industry: Roundup of a Solid CNY

China's tourism industry sees a strong recovery during the 2024 CNY holidays, with a high double-digit traffic surge. OTAs like Tongcheng and...

Osbert Tang, CFA

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

China Pair Trade: Long BCIA (694 HK), Short Air China (753 HK)

​BCIA's profit rebound and duty-free sales recovery should drive returns, while Air China faces stronger USD and high US interest rates. These...

Osbert Tang, CFA

Beijing Capital International Airport: On Track to Break Even

​Beijing Capital International Airport is poised for a steady recovery, with potential for breakeven by 2H24 and paving the way for mean reversion...

Eric Chen

BCIA (694 HK): Risk Reward Payoff Gets Increasingly Attractive

Market's muted response to weaker-than-expected 1H24 preliminary results suggest investors are looking beyond. Potential price hikes and resumption...

Eric Chen

China Airports: Beijing Capital Airport Offers Best Risk/Return Payoff

​China outbound travel is set to recover to pre-pandemic levels by year-end, with Beijing Capital Airport offering the best risk/return profile...

Eric Chen

China Tourism and Hospitality Industry: Roundup of a Solid CNY

​China's tourism industry sees a strong recovery during the 2024 CNY holidays, with a high double-digit traffic surge. OTAs like Tongcheng and...

Osbert Tang, CFA

BCIA's profit rebound and duty-free sales recovery should drive returns, while Air China faces stronger USD and high US interest rates. These...

Beijing Capital International Airport is poised for a steady recovery, with potential for breakeven by 2H24 and paving the way for mean reversion...

China outbound travel is set to recover to pre-pandemic levels by year-end, with Beijing Capital Airport offering the best risk/return profile...

China's tourism industry sees a strong recovery during the 2024 CNY holidays, with a high double-digit traffic surge. OTAs like Tongcheng and...