Edited by Haitong: airport Industry Research Framework: taking advantage of the trend of consumption

It is better to teach people to fish than to teach people to fish. Futu Research and selection has specially launched a series of research framework articles aimed at working with investors to "correct research ideas, understand the nature of the market, and seize investment opportunities." This paper is the fifth part of the research framework series-lying down to make money in the airport industry, what is the logic?

1. How does the airport make money?

Through the arrangement of the gross profit margin of listed airportsWe find that most of the profits that contribute to the airport are non-aviation businesses.Tax exemption, advertising and business are the most importantThe aviation business of the vast majority of airports is in a state of loss, and aviation income is only used as a cost offset.. And the airport makes the most money when it is full or even overproduced.

2. Is airport a good industry?

• Characteristics of airport business model

①Regional monopoly.Generally speaking, there is only one airport in a region; the entry threshold formed by huge initial investment; the scale effect is obvious (experience shows that China's airport passenger flow reaches more than 10 million before it can be profitable)

②Huge government subsidy. When building and expanding airports, the government will allocate capital for airport construction, and the Civil Aviation Development Fund will also allocate funds to support them. The actual amount of capital contributed by listed companies often accounts for only 50% and 70%. The government's investment in subways, light rail and highways built for the airport does not need to be funded by the airport.

③The production capacity and profit cycle are obvious.In the year when the airport was expanded and put into production, profits declined significantly due to huge depreciation, and then gradually increased.

P1 represents the break-even point of the airport, with empirical data around 10 million passengers per year.

P2 and P4 represent expansion nodes.

P3 represents the time when the airport changed from relying on aviation business to jointly promoting performance growth by aviation and non-aviation. Airport commerce is beginning to take shape, with empirical data around 30 million passengers per year.

④The operating life is much higher than the required number of years of static payback period.The operating life of the airport is 30-40 years (or more), and the static payback period is generally about 10 years.In addition, most of the employees working at the airport are not affiliated to the airport, mainly to airlines and air traffic controllers. The additional labour cost savings are also an important factor for the airport to capture excess revenue.

The medium-and long-term logic of the airport:The per capita flight frequency of ① in China is still very low, and the demand for future ② aircraft, especially wide-body aircraft, is huge.

What kind of airport is a good airport?

To sum up, we believe that a good airport needs the following elements: strong demand, adequate supply, high single-passenger consumption and high operational efficiency.

①Demand side, hubDue to the support of the aviation department of the main base, attracting transit passengers from all over the world, and the strong economy of the hinterland, the airport has a strong demand.

China's aviation industry is highly regulated by the government, and the positioning of airports is guided by the central government.In 2016, the Civil Aviation Administration issued the "opinions on further deepening the Reform of Civil Aviation".Out of "to"Beijing, Shanghai, GuangzhouAnd other three large international hubs as the core to build three world-class airport clusters.

②Supply side:Ground resources can be obtained through expansion, but the airspace as a whole is tight at present.Combing the policy, we believe that the situation of the airspace may be alleviated in 2020, and there will be a qualitative change in the airspace structure in five years' time.

The short-term constraints of airport capacity are the carrying capacity of existing terminals, runways and airspace; the medium-term constraints are the expansion plans of airport terminals and runways, and the long-term constraints are the airspace and ground support resources of the airport.

③Revenue quality:There is little difference in passenger cost per unit of major airports, so the corresponding income per unit passenger is the key factor to determine its gross profit margin, ROE and other indicators.The higher the proportion of international tourists, the better the quality of income.On the other hand, the hub airport undertakes the international and transit functions, so the hub airport has the highest revenue quality.

In terms of aviation income, according to the policy, the charge for international passengers is 2.5 times that for domestic passengers. Non-aviation business: since the duty-free business of the airport accounts for the majority of the non-air business, and the duty-free business can only be consumed by international / regional passengers, the proportion and willingness / ability of international passengers at the airport are very important.

④Operational efficiency:One of the biggest risks to the airport comes from the incompleteness of assets, which requires attention to the transactions associated with the group, as well as the future capital demands of listed companies and groups.

When the group is short of funds, there is a risk of buying at a premium. It is necessary to study the capital demands of the listed airport parent company in the future. from the above picture, the profits of the three major airport groups in Beijing, Shanghai and Guangzhou are largely dependent on listed companies. Therefore, Haitong believes that the future capital expenditure plan of the Group will also affect the reasonableness of the Group's related party transactions with listed companies.

On the whole, the assets of Shanghai Airport Group are of higher quality, and the determined capital expenditure in the future is relatively small. We believe that the capital requirements of the Group as a whole are relatively small. However, the site of Shanghai's proposed third airport in the future is already being selected, and it will take time to observe whether there is a large demand for capital expenditure in the future. Shenzhen Airport Group is also less dependent on the profits of listed companies.

4. when will you invest in the airport?

Through our review of the current round of airport prices, we found thatThe iconic event "doubling the duty-free commercial value of the Capital Airport" officially starts the upward cycle of the airport industry.And institutional funds also choose to invest in Shanghai airport and Baiyun airport at this time, which belongs to the discovery of turning point opportunities in the industry and high probability events. In the past, airport investors tended to invest in airport stocks after the base effect of large airport capital expenditure on profits disappeared.

5. Risk tips:

The impact of tax exemption in the city of ①; the group's capital demand after the construction of ② Shanghai No. 3 Airport; ③ tightened all the time, and the progress of airspace release was not as expected.