Incident: On August 26, 2024, Hainan Airport released its 2024 semi-annual report. 2024H1 achieved revenue of 2.251 billion yuan, or -33.22% year over year; net profit to mother 0.289 billion yuan, or -50.35% year on year; net profit after deducting non-return to mother 0.137 billion yuan, or -71.23% YoY.

The results were in line with the forecast values: Q2 revenue was 1.058 billion yuan, or -49.9%, mainly due to a year-on-year decline in carry-over revenue from the real estate business; net profit to mother was 0.071 billion yuan, -79.8% year over year; net profit without return to mother was 0.019 billion yuan, or -93.3% year over year. The performance was in line with the forecast range. Q2 gross margin was 41.1%, +0.2pct year on year, sales, management and finance rate was 30.0%, +11.7pct year on year; net interest rate to mother was 6.7%, -9.9pct year on year. The decline in net profit attributable to mother and net profit deducted from non-mother was mainly due to a sharp year-on-year decline in real estate revenue and a decrease in investment income at airport duty-free shops. The company also disclosed amendments to the company's articles of association to improve the dividend mechanism for listed companies.

Stock real estate is being removed, and outlying islands tax exemption is under pressure: in 2024, H1's airport/duty-free and commercial/real estate/property management/other businesses achieved revenue of 9.46/1.04/0.484/0.358/0.36 billion yuan, respectively, -1.1%/-26.3%/-68.2%/+1.3%/-9.8%. 2024H1 Sanya Phoenix Airport's take-off and landing cases/passenger throughput was 0.0627 million ships/10.8889 million passengers, -9.0%/-3.2% compared with the same period. The company participated in 5 outlying island duty-free shops through equity investment and space leasing. The total offline sales of 2024H1 was about 3 billion yuan, accounting for 16% of the duty-free sales of Hainan duty-free shops; in July 2024, the amount of duty-free shops/shoppers on the outlying islands of Hainan was 1.676 billion yuan/0.37 million people, -36%/-21% over the same period, putting pressure on the outlying islands duty-free sales during off-season trips to the islands. The contract area/contract amount for 2024Q2's real estate sales project was 0.0255 million square meters/0.412 billion yuan, or -31.4%/-47.3% compared with the same period last year.

2024 is an aggressive year for the customs closure and operation of the Hainan Free Trade Port: In 2024, Hainan will fully complete the construction of customs clearance software and hardware, laying a decisive foundation for customs clearance operations before the end of 2025. The company will establish a new pattern of “one, two wings and two engines” with “the main airport business as the foundation, duty-free commercial real estate, property and hotel services as the two wings, and airport and capital as the two driving engines”, accelerate specialized, modernization and market-based construction, and achieve high-quality development.

Profit forecast and investment rating: After integrating into Hainan's state-owned assets, Hainan Airport began high-quality development and participated deeply in the construction of the Hainan Free Trade Port. It is expected that it will continue to enjoy the prosperity of Hainan's island travel and future commercial port policy dividends. Based on the year-on-year decline in real estate and duty-free commercial business, the profit forecast for Hainan Airport was lowered. Net profit returned to mother for 2024-2026 was 0.98/1.09/1.21 billion yuan (previous value was 1.28/1.52/1.75 billion yuan), corresponding to the PE valuation of 39/35/31 times, maintaining the “gain” rating.

Risk warning: macroeconomic risks, risks that the construction progress of the Hainan Free Trade Port falls short of expectations