The company's recent situation

Baiyun Airport issued the “Notice on Signing a Cooperation Contract for the Operation of the T1 Terminal Outbound Duty Free Project”. According to the announcement: 1) T1 exit tax exemption is operated by China Exemption Group; 2) The area of the duty-free shop is 1747.18 square meters, and the operating rights transfer period is 20 months+X months, of which X months are the contract renewal period, and the specific time is determined based on the date T3 is activated and T1 stops its international function; 3) The rent uses a guarantee and a higher commission method, and the guarantee is RMB 2,180 per square meter/month. The guarantee is slightly adjusted according to the growth rate of passenger volume; the sales commission ratio is 23.15%.

reviews

We think the direction of rent adjustments is largely in line with our expectations. The company has not previously announced the details of the T1 exit store tax exemption agreement. The company's current basic commission rate for T1 and T2 inbound stores is 42%, and the T2 outbound stores are 35%. The unit comprehensive guarantee rent for the first year of signing the contract is about 7,800 yuan/square meter/month. We think it may be partially affected by the Ministry of Finance's policy regulations on duty-free rents in 20191, that is, the rent unit price of outbound duty-free shops must not be higher than 1.5 times the average unit price of domestic retail commercial rent including tax; the sales commission shall not be higher than 1.5 times the average commission rate for domestic retail businesses including tax included in the domestic department; the sales commission shall not be higher than the average commission ratio of domestic departments including retail sales tax 1.2 times

We expect the contract to have little impact on the company's actual performance. The company's T1 international flights resumed operations in the summer of 2023.2. According to CAPA, currently only about 29% of international flights (number of seats) enter and leave the country through the T1 terminal. At the same time, we estimate that the operation and layout of the company's T2 terminal duty-free shops may have a certain advantage over T1, so T1 outbound duty-free shops may contribute relatively little to sales.

Profit forecasting and valuation

We maintain the company's 2024/2025 profit forecast of 12.03 billion yuan and 1,244 billion yuan unchanged.

The current stock price corresponds to 20.7 times the 2024 price-earnings ratio and 20.0 times the 2025 price-earnings ratio.

Maintaining an industry rating and target price of 12.90 yuan, corresponding to 25 times the 2024 price-earnings ratio, there is 22.5% upside compared to the current stock price. We recommend continuing to monitor the company's duty-free business in the later stages (mainly including discounts on fragrance products and the arrival of tobacco and alcohol categories), as well as the progress of the third phase of the project.

risks

Tourist demand fell short of expectations; the development of the duty-free business fell short of expectations; and the cost increase brought about by the Phase III project was higher than expected.