Founded in 2000, the company is the operator of Haikou Meilan Airport. Meilan Airport Phase II project was put into operation at the end of 2021, since then the company has two terminals and two runways, with a designed capacity to meet the operating requirements of 35 million passengers and 400000 tons of annual cargo and mail throughput by 2025. Repeatedly affected by the domestic epidemic, 1H2022's operating income was 620 million yuan,-30% compared with the same period last year; net profit was-12 million yuan, down 103.4% from the same period last year; gross profit was 16.7%, and net profit was-2.0%.
Investment logic
Profitability is outstanding, and non-aviation revenue is growing against the trend. In 2019 before the epidemic, the company's passenger throughput was 24.22 million, ranking 17th in the country. Passengers leaving Meilan Airport are potential tax-free consumers, close to Beijing Capital Airport, so the company's gross profit margin has been maintained at more than 50% for many years. Higher than other comparable airports. Stimulated by the new tax exemption policy on outlying islands, the company's franchise income CAGR was 27% in 2019-2021, which was driven by a high increase in non-aviation revenue against the trend.
The second phase of the project will be put into operation after the recovery of the epidemic, and the flow can be increased. Residents' willingness to travel has increased after the adjustment of epidemic prevention and control, and the number of flights at Meilan Airport has recently approached or even exceeded the 2019 level.
At the same time, Sanya Airport, another major airport in Hainan, is facing full production bottlenecks, while Meilan Airport has plenty of capacity: (1) the second phase of the 2021 project is commissioned, and the passenger throughput capacity increases to 35 million passengers; (2) another terminal will be added in the third phase of the expansion, and the passenger throughput capacity will be further increased to 60 million passengers. Aviation business revenue is expected to be 360 million yuan, 780 million yuan and 910 million yuan respectively from 2022 to 2024, which is-30%, + 114% and + 16% respectively compared with the same period last year.
Sitting on the natural outlying island traffic, there is a broad space for non-aviation growth. (1) compared with the duty-free shops on the outlying islands in the city, as the first stop for passengers to enter and leave Hainan, the airport naturally monopolizes high-end traffic and supports "pick-up", which will grow with the growth of the duty-free industry on the outlying islands. After the new duty-free policy on outlying islands, the per capita consumption of duty-free shops at the airport has increased from less than 100 yuan to 218 yuan. (2) Meilan Airport T2 duty-free commercial area of nearly 10,000 square meters, duty-free shop area doubled after production, a larger area will be able to accommodate more brands, T2 products reached more than 580, higher than T1 380, will help to increase per capita duty-free consumption. (3) it is estimated that the percentage of duty-free stores of the company is lower than that of other airports, which may lead to the growth of non-aviation revenue. It is estimated that the non-aviation business income in 2022-2024 is 640 million yuan, 1.55 billion yuan and 1.92 billion yuan respectively, which is-41%, + 142% and + 24% respectively compared with the same period last year, and the tax-free rental income in 2022-2024 is expected to be 310 million yuan, 790 million yuan and 1.03 billion yuan respectively.
Earnings forecasts, valuations and ratings
It is estimated that the net profit of the company from 2022 to 2024 will be-260 million yuan, 670 million yuan and 1 billion yuan. Using the DCF method, the target price of 2023 is HKD 33.34 yuan per share, and the "buy" rating is given for the first time.
Risk hint
The risk of demand recovery is less than expected, the risk of duty-free business operation, the risk of expansion impact exceeding expectations, and the risk of charging price control.