Greater China Equity Long/Short Analyst

Eric Chen

Equity Bottom-Up

Hainan Meilan International Airport / Equity Bottom-Up

<ul>
<li>We had a chance talking to the company about key topics about outlook of passenger traffic, recovery of duty-free sales and details about the arbitration.</li>
<li>The takeaway is mixed as we see both positives and negatives relative to our expectations.</li>
<li>We cut our forecast of 2023 net profit from RMB400 million to RMB300 million and expect the earnings to be back-end loaded.</li>
</ul>


We had a chance talking to the company about key topics about outlook of passenger traffic, recovery of duty-free sales and details about the arbitration.
The takeaway is mixed as we see both positives and negatives relative to our expectations.
We cut our forecast of 2023 net profit from RMB400 million to RMB300 million and expect the earnings to be back-end loaded.


Meilan Airport (357 HK): Mixed Takeaways from Conversations with the Company

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Hainan Meilan International Airport / Event-Driven

<ul>
<li>Back On 29 September 2019, <a href="https://www.smartkarma.com/entities/hainan-meilan-international-airport-company-limited" target="_blank" data-smartkarma-citation="entities:12545:1" rel="noopener"><strong>Hainan Meilan International Airport (357 HK)</strong></a> entered into a subscription agreement with Hopu-affiliate Aero Infrastructure, for 200mn new H shares at HK$4.69/share.</li>
<li>That issuance failed as CSRC approval was not secured by the Long Stop. Hopu reckoned HMIA reneged on its duties to secure approval and lodged a notice of arbitration.</li>
<li>HKIAC recently agreed and opines HMIA did not use its best endeavours to complete the subscription. Hopu is seeking up to HK$6.962bn in compensation. Quite the overhang.</li>
</ul>


Back On 29 September 2019, Hainan Meilan International Airport (357 HK) entered into a subscription agreement with Hopu-affiliate Aero Infrastructure, for 200mn new H shares at HK$4.69/share.
That issuance failed as CSRC approval was not secured by the Long Stop. Hopu reckoned HMIA reneged on its duties to secure approval and lodged a notice of arbitration.
HKIAC recently agreed and opines HMIA did not use its best endeavours to complete the subscription. Hopu is seeking up to HK$6.962bn in compensation. Quite the overhang.


Hainan Meilan's (357 HK)'s Arbitration Case Is Not Without Merit

<ul>
<li>FY22 results announced last week were in line excluding non-recurring items. The results provided latest evidence of monetization potential of its passenger traffic and insights into its cost base.</li>
<li>We trim 2023 net profit estimate by 10% to RMB520 million and maintain RMB1 billion net profit estimate for 2025.  Expect 25%/150% return by 2023/25 respectively based on 20x P/E.</li>
<li>Duty-Free concession agreement renewal in 2025 is a key positive catalyst, but we also caution potential follow-on share issuance this year could be an overhang on stock price.  </li>
</ul>


FY22 results announced last week were in line excluding non-recurring items. The results provided latest evidence of monetization potential of its passenger traffic and insights into its cost base.
We trim 2023 net profit estimate by 10% to RMB520 million and maintain RMB1 billion net profit estimate for 2025.  Expect 25%/150% return by 2023/25 respectively based on 20x P/E.
Duty-Free concession agreement renewal in 2025 is a key positive catalyst, but we also caution potential follow-on share issuance this year could be an overhang on stock price.  


Meilan Airport (357 HK): Higher Visibility into Earnings Recovery Outlook

<ul>
<li>Meilan Airport issued a profit warning last night expecting a net loss of not more than RMB280 million for 2022. </li>
<li>While the magnitude of loss surprised us, positive share price reaction suggests investors are ready to look beyond.</li>
<li>We incorporate both higher passenger throughput and financial expenses estimate in our model and trim our net profit forecast for 2023 from RMB600 million to RMB500 million. Maintain Buy. </li>
</ul>


Meilan Airport issued a profit warning last night expecting a net loss of not more than RMB280 million for 2022. 
While the magnitude of loss surprised us, positive share price reaction suggests investors are ready to look beyond.
We incorporate both higher passenger throughput and financial expenses estimate in our model and trim our net profit forecast for 2023 from RMB600 million to RMB500 million. Maintain Buy. 


Meilan Airport (357 HK): Profit Warning Removed Share Price Overhang

<ul>
<li>Strong passenger traffic year-to-date indicates that full-year passenger throughput for 2023 will be on par with 2019.</li>
<li>Concerns that China resuming outbound travel could turn domestic tourists away from Hainan are overblown, overlooking the huge pent-up leisure travel demand over last three years.</li>
<li>We expect investors will focus on pace and sustainability of the recovery when company announces 2022 results. Being eligible for Stock Connect Program in 2023 will be a key catalyst. </li>
</ul>


Strong passenger traffic year-to-date indicates that full-year passenger throughput for 2023 will be on par with 2019.
Concerns that China resuming outbound travel could turn domestic tourists away from Hainan are overblown, overlooking the huge pent-up leisure travel demand over last three years.
We expect investors will focus on pace and sustainability of the recovery when company announces 2022 results. Being eligible for Stock Connect Program in 2023 will be a key catalyst. 


Meilan Airport (357 HK): Takeaway from Recent Passenger Throughput

China

Hainan Meilan International Airport Company Limited provides airfield services, terminal facilities, ground handling services, passenger and cargo handling services. The Company also leases commercial and retail space at the Meilan Airport, operates airport-related business franchising, advertising, car parking, tourism services, and sells duty-free and consumable goods.

Hainan Meilan International Airport (357 HK)

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Hainan Meilan International Airport (357 HK)

Meilan Airport (357 HK): Mixed Takeaways from Conversations with the Company

We have mixed takeaways after talking to the company with regard to key topics such as passenger traffic, duty-free sales and progress of...

Eric Chen

Hainan Meilan's (357 HK)'s Arbitration Case Is Not Without Merit

The arbitration is an overhang. HMIA should aim to reach a settlement with Hopu. The announced upward adjustment in its slot capacity is positive. ...

David Blennerhassett

Meilan Airport (357 HK): Higher Visibility into Earnings Recovery Outlook

Our revised financials post FY22 results point to RMB520 million / RMB 1 billion net profit for 2023/25 respectively. Maintain RMB10 billion/20...

Eric Chen

Meilan Airport (357 HK): Takeaway from Recent Passenger Throughput

YTD passenger traffic indicates full-year throughput for 2023 will be on par with 2019. Concerns about outbound travel turning tourists away from...

Eric Chen

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Meilan Airport (357 HK): Mixed Takeaways from Conversations with the Company

We have mixed takeaways after talking to the company with regard to key topics such as passenger traffic, duty-free sales and progress of...

Eric Chen

Hainan Meilan's (357 HK)'s Arbitration Case Is Not Without Merit

The arbitration is an overhang. HMIA should aim to reach a settlement with Hopu. The announced upward adjustment in its slot capacity is positive. ...

David Blennerhassett

Meilan Airport (357 HK): Higher Visibility into Earnings Recovery Outlook

Our revised financials post FY22 results point to RMB520 million / RMB 1 billion net profit for 2023/25 respectively. Maintain RMB10 billion/20...

Eric Chen

Meilan Airport (357 HK): Profit Warning Removed Share Price Overhang

Meilan Airport expects net loss of not more than RMB280 million for 2022. We believe markets already fully digested the news and investors are...

Eric Chen

Meilan Airport (357 HK): Takeaway from Recent Passenger Throughput

YTD passenger traffic indicates full-year throughput for 2023 will be on par with 2019. Concerns about outbound travel turning tourists away from...

Eric Chen