Losses reached a record high, but profits have entered the recovery phase; maintaining “buying”
Capital Airport's revenue in 2022 fell 33.3% year on year to 2,231 million; Guimu's net loss was 3,527 million yuan, an increase of 1,410 million yuan over the previous year, in line with the profit forecast (net loss of RMB 3.5 billion to 3.6 billion yuan). The year-on-year increase in net loss was mainly due to severe suppression of civil aviation demand in Beijing, and passenger throughput fell sharply by 61.1% year on year. However, the company's traffic is expected to pick up significantly in 2023, and with the resumption of international routes, it will drive improvements in the non-aviation business. We expect the company's net profit for 2023-2025 to be $0.98/128/1,487 million (previous value: 0.82/877/100 million in 23/24). We raised the target price based on the DCF valuation method to HK$8.00 (WACC: 9.0%). Considering that the company's profits have begun to recover and that the long-term company's flight structure is expected to improve, the “buy” rating will be maintained.
Traffic was only 13% in 2019, and revenue was significantly hampered
Travel demand for Beijing Airlines was limited in 2022, compounded by the diversion of Daxing Airport. The passenger throughput of Capital Airport was 12.7 million passengers, a sharp drop of 61.1% over the previous year. It only recovered to 13% in 2019. There were 157,600 flights taking off and landing, down 47.1% from the same period, only 26% in '19. Under the sluggish traffic, the company's various businesses were generally impacted. Airline business revenue was 711 million, a decrease of 47.1%; non-aviation business revenue was 1,520 million, a decrease of 24.1%. Among them, franchise business revenue recorded 676 million, a decrease of 29.0% from the same period. In the end, the company's revenue was only 2,231 million, a year-on-year decrease of 33.3%, and only 21% in 2019.
However, demand for civil aviation entered a recovery phase in 2023, and we are optimistic that the company's traffic and revenue will improve markedly.
Cost rigidity caused losses to expand year-on-year; it is optimistic that the company will reverse losses in '23, such as depreciation and employee costs are relatively rigid. Although revenue fell into a trough, operating costs in '22 were 5.789 billion, a slight decrease of 4.3% from the previous year, and still 79% in '19. In addition, the company lost 121 million yuan in exchange in '22, an increase of 157 million over the previous year. In the end, the company's net loss was 3,527 million yuan, an increase of 1,410 million yuan over the previous year, and the loss reached a new high. However, demand for civil aviation has now reached an inflection point. The company's operating leverage is conducive to a rapid recovery in net profit when revenue improves. We believe that the company is expected to reverse losses in '23, and that international route traffic is expected to continue to rise, driving profitable and flexible non-aviation business and further profit recovery.
Adjust the target price to HK$8.00 to maintain the “buy” rating
We expect Capital Airport to record a net profit of $0.98/1208/1,487 million in 2023-2025, raising the target price based on the DCF valuation method to HK$8.00 (WACC was 9.0%, previous value was 9.8%; the sustainable growth rate was 2.0% unchanged; the previous target price was HK$6.75). Considering that the company's profits are expected to recover quickly and that the long-term flight structure of Capital Airport is expected to improve, we reaffirm the “buy” rating.
Risk warning: 1) the recovery in civil aviation demand fell short of expectations; 2) duty-free sales fell short of expectations and terms were revised; 3) the recovery of international routes fell short of expectations; 4) the diversion of Daxing Airport exceeded expectations.