2023 results in line with market expectations
Shanghai International Airport announced its 2023 results: Revenue rose 102% YoY to Rmb11.05bn, and attributable net profit reached Rmb934mn (vs. -Rmb3.0bn in 2022). In 4Q23, revenue rose 131% YoY or 2% QoQ to Rmb3.13bn, and net profit reached Rmb437mn (vs. -Rmb892mn in 4Q22 and Rmb364mn in 3Q23). The firm's results were in line with market expectations.
Revenue recovered along with tourist traffic; full-year DFS income at about Rmb1.8bn. In 2023, revenue from aircraft takeoff and landing grew 75% YoY, and that from passenger, cargo and mail services rose 246% YoY. In 2023, the firm's two airports reported 112% and 236% YoY growth in aircraft takeoffs and landings as well as passenger throughput.
Revenue from non-aviation business grew 82% YoY, with that from commercial catering and logistics services up 334% and 8% YoY. Revenue from duty-free contracts was Rmb1.79bn in 2023, including about Rmb480mn in rent that were recognized in 4Q23 (vs. Rmb530mn in 3Q23). The firm implemented new supplementary contracts with duty-free shops (DFS) in December 2023.
Operating costs increased slightly; investment income improved significantly. Operating costs grew 4% YoY in 2023, with labor and depreciation & amortization up 7% and 9% YoY. Operation and maintenance costs were down 3% YoY due to lower disaster prevention expenses. In 2023, investment income rose 274.35% YoY to Rmb661mn, mainly contributed by JCDecaux as well as ground service and oilseed subsidiaries. In 2023, newly acquired assets Uni-champion and CDF Sunrise Internet Technology contributed Rmb77mn and Rmb22mn.
Trends to watch
Recovery of tourist traffic accelerated; watch sales under new DFS contracts. In February 2024, passenger throughput of domestic and international flights recovered to 120% and 80% of the levels in the same period of 2019, which were 16ppt and 12ppt higher than the recovery in December 2023. We suggest paying attention to changes brought by new duty-free contracts in discounts on perfumes and fragrances at airports, introduction of premium brands, and effectiveness of online booking model.
Construction of Phase IV project well underway. According to the Shanghai Planning & Natural Resources Bureau1 and NDRC2, completion of Shanghai Pudong International Airport's Phase IV expansion project is slated for 2027, which will likely start operation in 2028. The project involves a terminal T3, covering an area of about 852,600 sqm, and will provide a guaranteed airport capacity of 130mn passengers after completion.
Financials and valuation
We lower our 2024 and 2025 net profit forecasts 13% and 14% to Rmb3.31bn and Rmb4.45bn, mainly because we lower our assumptions for passenger volume growth and transactions per business customer. The stock is trading at 27.3x 2024e and 20.3x 2025e P/E. We keep our target price unchanged at Rmb40, implying 30x 2024e P/E (vs. previous target P/E of 26x, mainly considering improving risk appetite for the firm amid accelerating recovery of international travel), offering 10.3% upside.
Risks
Disappointing tourist traffic recovery and/or DFS sales; higher-than- expected capex.