Introduction to this report:
A new contract for the Baiyun Airport T1 Outbound Store has been signed, and China and Baiyun Airport have a win-win situation.
Key points of investment:
The proposed investment is to maintain the 2024-2026 EPS at $3.74/4.30/4.59, respectively. Referring to the valuation of comparable companies in the same industry, considering the stable position of the leading Chinese free market, PE was given 27 times higher than the industry average in 2024, maintained the company's target price of 102.6 yuan, and maintained an increase in holdings rating.
Incident: Guangzhou Baiyun Airport and China Free Insurance Group signed a cooperation contract for the operation of the T1 terminal exit duty-free project. Baiyun Airport transferred the management rights of the specific site to China Express Group within the contract period. The T1 Outbound Duty Free Shop operates on 1747.18 square meters of Outbound Duty Free Shop in East 1st Corridor, East 1st Corridor, and East 2nd Corridor. The operating rights transfer period for the business site is 20 months+X months, of which 20 months is a fixed contract period and X months is a contract renewal period.
The sales commission ratio for T1 outbound stores is 23.15%, and the cooperation between China Free and Baiyun Airport is win-win. The T1 and T2 inbound and outbound duty-free shops at Baiyun Airport all use a high rent calculation model with guarantees and commissions. Among them, the commission ratio for T1 and T2 inbound stores was 42%, and the commission ratio for T2 outbound stores was 35%. The guaranteed rent was lowered after signing a supplementary agreement in June 2022. According to this contract, the sales commission ratio for the T1 outbound duty-free shop at Baiyun Airport is 23.15%, the unit price of the monthly guaranteed operating rights transfer fee is RMB 2180 yuan/㎡ (adjusted according to passenger flow), and the monthly guaranteed operating rights transfer fee is the unit price of the monthly guaranteed operating rights transfer fee x the total area of the site area.
International passenger flow at the airport is recovering at an accelerated pace, and duty-free sales are expected to be boosted. 2024Q1 Guangzhou Baiyun Airport's international, Hong Kong, Macao and Taiwan passenger traffic was 3.23 million, +286%; 2024Q1 Shanghai Pudong Airport's international, Hong Kong, Macao and Taiwan passenger traffic was 7.06 million, +302% year-on-year, returning to 73% in 2019; 2024Q1, Beijing Capital Airport's international, Hong Kong, Macao and Taiwan passenger throughput was 3.23 million people, +418% over the same period, returning to 48% in 2019. Airport passenger flow has resumed, and airport duty-free sales are expected to continue to pick up. Deductions at Shanghai Airport, Capital Airport, and Baiyun Airport have been reduced, which is beneficial to the release of the airport's duty-free performance.
Risk warning: Policy implementation falls short of expectations; inbound and outbound passenger flow is recovering slowly; consumer demand is weak.