The company's recent situation

Beijing Capital Airport Co., Ltd. recently issued a supplementary agreement on the contract management agreement for advertising business and international retail business (hereinafter referred to as the “Supplementary Agreement”). According to the supplementary agreement, the entrustment management rate for the trading company (a wholly-owned subsidiary of the parent company of Capital Airport) was reduced from 20% to 10%, and the commission management fee rate for the advertising business of the media company (a wholly-owned subsidiary of the parent company of Capital Airport) was reduced from 22% to 16%; the effective period was all from September 19, 2024 to the end of 2026; at the same time, the maximum amount of transactions related to international retail contract management for 2024-2026 was reduced from 0.24, 0.37, and 0.51 billion yuan to 0.09 billion yuan. 0.11 and 0.14 billion yuan, and the maximum amount of related transactions managed by the advertising business was lowered from 0.2, 0.25, and 0.27 billion yuan to 0.151, 0.17, and 0.192 billion yuan.

reviews

We believe that the company-related transactions situation continues to improve. From 2018 to 2020, the basic share ratios for the company's international retail business and advertising business entrustment management agreements were 22% and 25%, respectively, and both included an incremental sharing mechanism; from 2021 to 2023, the basic share ratio remained the same but the incremental sharing mechanism was abolished; from 2024 to 2026, the basic share ratio was lowered to 20% and 22%, respectively, and this supplementary agreement was further reduced to 10% and 16%. We expect that the continuous improvement of the contract management rate will help reduce the company's cost pressure.

Commercial business revenues are yet to be improved. In the first half of 2024, the company's international retail franchise revenue and advertising revenue were 0.259 billion yuan and 0.356 billion yuan respectively, 15% and 61% of the same period in 2019, respectively, while the number of visitors was 66% in the same period in 2019. We believe there may be more pressure to repair non-aviation businesses compared to aviation businesses, especially duty-free businesses.

Profit forecasting and valuation

We maintain the company's profit forecast for 2024/2025 - 0.478 billion yuan/0.182 billion yuan unchanged. The current stock price corresponds to 0.6 times the 2024 net market ratio and 0.6 times the 2025 net market ratio. We maintain our outperforming industry rating and keep our target price of HK$2.9 unchanged (based on 0.8 times 2024 P/B), with 29.5% upside compared to the current stock price.

risks

The recovery for international travelers fell short of expectations; duty-free spending continued to weaken; capital expenditure exceeded expectations.