The company's recent situation
The company recently announced a draft restricted stock incentive plan for A-shares (hereinafter referred to as the “Draft”). According to the draft, this equity incentive: 1) It is proposed to grant no more than 10.5085 million A-share restricted shares (accounting for 0.42% of the company's current share capital), and the source of the shares is company shares targeted to the incentive target; 2) the grant targets are directors, senior management, and other key personnel, totaling no more than 300 people; 3) the initial grant price is 18.44 yuan/share; 4) Using the method of lifting sales restrictions in batches, 40% will be lifted in the 24-36th, 36-48th, and 48-60th months after the grant registration is completed /30%/30% sales restriction ratio; 5) At the time of lifting the sales restriction, the company level mainly includes the following financial conditions: earnings per share from 2024 to 2026 were not less than 0.71/0.84/0.98 yuan per share (and not lower than the industry average), the net profit growth rate compared to 2023 was not less than 90%/125%/160% (and not lower than the industry average), respectively, and gross margin of not less than 19%/22.5%/26%, respectively. The plan needs to be approved by the Shanghai State-owned Assets Administration Commission, and can only be implemented after review and approval by the company's shareholders' meeting.
reviews
Equity incentives bind management interests. We estimate that the net profit for 2024/2025 corresponding to the current unlocking conditions (2024/25 net profit growth rate is not less than 90%/125% compared to 2023, respectively) is 1.77 billion yuan/210 billion yuan respectively, which is 34%/39% lower than our profit forecast, and 36%/48% lower than Wind's agreed forecast. We expect the average profit growth rate of the industry to be similar to the absolute growth rate given by the company. According to our profit forecast, the profit growth rate of Baiyun Airport in 2024/2025 compared to 2023 will be 172%/181%, respectively, 9%/60% for Shenzhen Airport, 40%/47% for Xiamen Airport, and 40%/47% for Capital Airport in 2023. Furthermore, according to the draft, the company expects equity incentives to stimulate the motivation of the management team, improve operational efficiency, motivate their enthusiasm and creativity, and integrate their interests more closely with the company's long-term development.
Equity incentives or additional management costs. According to the company's expectations in the draft, if 8.4068 million restricted shares are granted to the incentive target for the first time, assuming that they are granted on May 14, 2024, the corresponding total cost will be about 154.69 million yuan. In 2024 and 2025, they will amortize 36.71 million yuan and 58 million yuan respectively.
Profit forecasting and valuation
We lowered the company's profit forecast for 2024 and 2025 by 19% and 23% to 2,676 billion yuan and 3.439 billion yuan, mainly based on the assumption that the unit price for duty-free consumers was lowered based on the recent situation in the duty-free business. The current stock price corresponds to 34.3, 26.7 times the 2024/2025 price-earnings ratio. We lowered our target price by 5% to RMB 38, corresponding to 35 times the 2024 P/E (30 times the original value, mainly considering the market's improvement in the risk appetite of the company under the continuous restoration of international flights) to maintain a rating that outperforms the industry. There is 3% room for growth compared to the current stock price.
risks
The restoration of passenger flow fell short of expectations, the performance of duty-free sales fell short of expectations, and the amount of capital expenditure was higher than expected.