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> logged a loss of Rmb352m in 3Q20, representing a 24.6% QoQ loss narrowing. In absolute terms, it is worse than <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> (loss of Rmb131m) 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> (loss of Rmb347m). However, we still prefer SIAC given its exposure to the gradual recovery in international traffic, growth in freight volume, limited amount of capex and less risk of traffic competition/diversion.For GBIA and BCIA, we think that the better 3Q20 results cannot cover the serious structural concerns they are facing. GBIA have worries including competition from other airports, the potential construction of a new airport at the Guangzhou vicinity and the likely rise in capex due to capacity expansion.  Meanwhile, traffic diversion to Beijing Daxing International Airport is still the medium term issue to cap BCIA's pace of recovery.

Shanghai International Airport (600009 CH) logged a loss of Rmb352m in 3Q20, representing a 24.6% QoQ loss narrowing. In absolute terms, it is worse than Guangzhou Baiyun International Airport (600004 CH) (loss of Rmb131m) and Beijing Capital International Airport (BCIA) (694 HK) (loss of Rmb347m). However, we still prefer SIAC given its exposure to the gradual recovery in international traffic, growth in freight volume, limited amount of capex and less risk of traffic competition/diversion.For GBIA and BCIA, we think that the better 3Q20 results cannot cover the serious structural concerns they are facing. GBIA have worries including competition from other airports, the potential construction of a new airport at the Guangzhou vicinity and the likely rise in capex due to capacity expansion.  Meanwhile, traffic diversion to Beijing Daxing International Airport is still the medium term issue to cap BCIA's pace of recovery.

Shanghai International Airport (600009 CH): Narrowing Loss in 3Q20

China Southern Airlines / Equity Bottom-Up

<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 caught up in its passenger traffic in Sep with a 27.5% YoY decline, compared with -32.2% for <a href="https://www.smartkarma.com/entities/china-eastern-airlines-co-h" target="_blank" data-smartkarma-citation="entities:1079:1" rel="noopener">China Eastern Airlines Co (H) (670 HK)</a> and -38.6% for <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>. More importantly, domestic passenger traffic reached a growth of 1.6% YoY, suggesting a full recovery in last month. CSA also performed well on capacity management - achieving the best passenger, cargo and overall load factors for Sep and 9M20 among the big three. We expect the good traffic recovery, solid load factors, QoQ increase in average fare and sharp appreciation in Rmb will support encouraging bottom line rebound in 3Q20, with a slight potential of reporting a profit in the quarter. In our view, CSA remains inexpensive at 0.8x 12-month forward P/B given its underlying recovery momentum and below-average valuation.

China Southern Airlines (1055 HK) has caught up in its passenger traffic in Sep with a 27.5% YoY decline, compared with -32.2% for China Eastern Airlines Co (H) (670 HK) and -38.6% for Air China Ltd (H) (753 HK). More importantly, domestic passenger traffic reached a growth of 1.6% YoY, suggesting a full recovery in last month. CSA also performed well on capacity management - achieving the best passenger, cargo and overall load factors for Sep and 9M20 among the big three. We expect the good traffic recovery, solid load factors, QoQ increase in average fare and sharp appreciation in Rmb will support encouraging bottom line rebound in 3Q20, with a slight potential of reporting a profit in the quarter. In our view, CSA remains inexpensive at 0.8x 12-month forward P/B given its underlying recovery momentum and below-average valuation. 

China Southern Airlines (1055 HK): Impressive Sep Sets Strong Tone for 4Q20

<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

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)

Beijing Capital International Airport (BCIA)

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Beijing Capital International Airport (BCIA) (694 HK)

Shanghai International Airport (600009 CH): Narrowing Loss in 3Q20

Shanghai Intl Airport narrowed its loss by 24.6% QoQ to Rmb352m in 3Q20. We like its exposure to the growth in cargo and recovery international...

Osbert Tang, CFA

China Southern Airlines (1055 HK): Impressive Sep Sets Strong Tone for 4Q20

China Southern has the best traffic and load factor among the big three airlines in Sep. Good traffic, load expansion, fare improvement and Rmb...

Osbert Tang, CFA

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

Shanghai Intl Airport recorded encouraging growth of 18.9% in domestic aircraft movement and 13.5% in domestic passenger traffic in Sep. They are...

Osbert Tang, CFA

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

Sep marked the first month of positive growth in both domestic aircraft movement and passenger throughput at Guangzhou Baiyun Intl Airport; and we...

Osbert Tang, CFA

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

China is hopeful of being the first market to recover its travel industry post the pandemic. Therefore, we are interested in scanning the industry...

Steven Chen

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52-week Range

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