HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

Guangzhou Baiyun International Airport / Equity Bottom-Up

<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> (GBIA) has another solid month in Nov, continuing the promising trend in Oct and logging a massive 20.2% YoY surge in domestic aircraft movement and a 4.8% leap in domestic passenger traffic. Moreover, the decline in cargo and mail throughput has narrowed to 1.3% YoY only, the best in the last 5 months. We believe this set of traffic performance signals that there is no abatement in its growth paces.Despite the positive trend, GBIA has underperformed <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> (SIAC) by a significant 16.4pp YTD. It is true that the construction of a new Guangzhou airport and the closer co-operation between the Hong Kong airport and Zhuhai airport are challenges in the future. However, with a favourable base for YoY comparison in 1Q21 and the sustained strength in domestic traffic in the next few months, we believe there is room for GBIA to narrow its performance gap against SIAC in the near term.

Guangzhou Baiyun International Airport (600004 CH) (GBIA) has another solid month in Nov, continuing the promising trend in Oct and logging a massive 20.2% YoY surge in domestic aircraft movement and a 4.8% leap in domestic passenger traffic. Moreover, the decline in cargo and mail throughput has narrowed to 1.3% YoY only, the best in the last 5 months. We believe this set of traffic performance signals that there is no abatement in its growth paces.Despite the positive trend, GBIA has underperformed Shanghai International Airport (600009 CH) (SIAC) by a significant 16.4pp YTD. It is true that the construction of a new Guangzhou airport and the closer co-operation between the Hong Kong airport and Zhuhai airport are challenges in the future. However, with a favourable base for YoY comparison in 1Q21 and the sustained strength in domestic traffic in the next few months, we believe there is room for GBIA to narrow its performance gap against SIAC in the near term.

Guangzhou Baiyun Intl Airport (600004 CH): No Abatement in Growth Paces

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> blew away its peers <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 <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> in Oct with its impressive traffic and load performance, thanks to the encouraging demand during the "Double Festivals" Golden Week. Meanwhile, its freight traffic is also the strongest among the Big 3s, logging just a 2.1% decline but both regional and international routes are back in the positive zone.CSA has given back 2-3pp of its outperformance against Air China in last week due to the expectation of international traffic recovery, but it has still outperformed the latter by 13.6pp. We believe such recovery will be very gradual, and CSA will stay benefiting from the resilient domestic traffic and the strength of Rmb against USD.

China Southern Airlines (1055 HK) blew away its peers China Eastern Airlines Co (H) (670 HK) and Air China Ltd (H) (753 HK) in Oct with its impressive traffic and load performance, thanks to the encouraging demand during the "Double Festivals" Golden Week. Meanwhile, its freight traffic is also the strongest among the Big 3s, logging just a 2.1% decline but both regional and international routes are back in the positive zone.CSA has given back 2-3pp of its outperformance against Air China in last week due to the expectation of international traffic recovery, but it has still outperformed the latter by 13.6pp. We believe such recovery will be very gradual, and CSA will stay benefiting from the resilient domestic traffic and the strength of Rmb against USD.

China Southern Airlines (1055 HK): Domestic Strength Stays on Course

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> extended its good traffic performance to Oct with impressive 23.9% YoY surge in domestic aircraft movement and 17.5% YoY growth in domestic passenger throughput. It also achieved the best growth in cargo and mail traffic in last month when compared with <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>.We believe international traffic and cargo volume will be the increasingly important drivers for SIAC over the next 12 months, with the key reasons being: 1.)  positive news of COVID-19 vaccine development; 2.) more accommodative China policies of the US; 3.) RCEP's boost to regional airfreight market; and 4.) added confidence in business meetings in Shanghai.

Shanghai International Airport (600009 CH) extended its good traffic performance to Oct with impressive 23.9% YoY surge in domestic aircraft movement and 17.5% YoY growth in domestic passenger throughput. It also achieved the best growth in cargo and mail traffic in last month when compared with Guangzhou Baiyun International Airport (600004 CH) and Beijing Capital International Airport (BCIA) (694 HK).We believe international traffic and cargo volume will be the increasingly important drivers for SIAC over the next 12 months, with the key reasons being: 1.)  positive news of COVID-19 vaccine development; 2.) more accommodative China policies of the US; 3.) RCEP's boost to regional airfreight market; and 4.) added confidence in business meetings in Shanghai.

Shanghai International Airport (600009 CH): Extending Traffic Outperformance to Oct

Asian Insight Provider - Actionable ideas, CrossASEAN Research

Henry Soediarko

Asian Insight Provider - Actionable ideas

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Thematic (Sector/Industry)

Less than a year since the news hit that the Chinese outbreak spread to the world, <a href="https://www.smartkarma.com/entities/pfizer-inc" target="_blank" data-smartkarma-citation="entities:1131:1" rel="noopener">Pfizer Inc (PFE US)</a> has announced its vaccine with more than 90% effective in preventing Covid-19 among those without evidence of prior infection. Similar to <a href="https://www.smartkarma.com/insights/china-outbreak-theme-winners-and-losers" target="_blank" data-smartkarma-citation="insights:35971" rel="noopener">China Outbreak Theme: Winners and Losers</a> , this insight will discuss the potential winners and losers from the announcement of the vaccine. Travel-related names such as airlines, airport operators, tour operators, the duty-free operators are the clear beneficiaries of this news while auto dealership will also benefit from the potential lower unemployment later on. Instant noodle makers, pc makers that benefit from the work-from-home rush, as well as glove makers will no longer enjoy the same growth rate in 1H, and in the case of the glove makers, both ASP and volumes may see a decline.

Less than a year since the news hit that the Chinese outbreak spread to the world, Pfizer Inc (PFE US) has announced its vaccine with more than 90% effective in preventing Covid-19 among those without evidence of prior infection. Similar to China Outbreak Theme: Winners and Losers , this insight will discuss the potential winners and losers from the announcement of the vaccine. Travel-related names such as airlines, airport operators, tour operators, the duty-free operators are the clear beneficiaries of this news while auto dealership will also benefit from the potential lower unemployment later on. Instant noodle makers, pc makers that benefit from the work-from-home rush, as well as glove makers will no longer enjoy the same growth rate in 1H, and in the case of the glove makers, both ASP and volumes may see a decline. 

<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

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)

Guangzhou Baiyun Intl Airport (600004 CH): No Abatement in Growth Paces

No sign of slowing traffic growth and decline for cargo throughput have further moderated in Nov. Having underperformed SIAC significantly YTD,...

Osbert Tang, CFA

China Southern Airlines (1055 HK): Domestic Strength Stays on Course

CSA sustained its passenger traffic outperformance into Oct, and its freight volume is also the best among the Big 3s. 4Q20 will stay encouraging...

Osbert Tang, CFA

Shanghai International Airport (600009 CH): Extending Traffic Outperformance to Oct

SIAC recorded good growth in domestic aircraft movement, domestic passenger traffic and cargo throughput in Oct; and international traffic and...

Osbert Tang, CFA

Pfizer Vaccine: Winners and Losers

Similar to China Outbreak Theme: Winners and Losers , this insight will discuss the potential winners and losers from the announcement of the vaccine.

Henry Soediarko

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

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