Shanghai Airport
On January 3, 221, Shanghai Airport issued the Announcement on Signing a Supplementary Agreement on the Transfer Contract of Duty-free Shop Projects. Since then, Shanghai Airport has been down for two consecutive trading days. There is a fierce confrontation between institutions about whether the investment logic of Shanghai Airport has changed. In this article, we will analyze the Shanghai Airport, a leading civil airport that has been heavily occupied by Public Offering of Fund for more than ten years, from the historical evolution and fundamentals, business model, competition pattern and moat and underlying logic. In order to explain the underlying growth logic of the company more clearly, this paper will mainly tell the company from two aspects: before and after the epidemic.
Before the epidemic
I. Historical evolution and fundamentals
Shanghai
At the end of 1987, the civil aviation management system was greatly reformed. The former Shanghai Civil Aviation Administration was divided into three units: East China Civil Aviation Administration, China Eastern Airlines and Shanghai Hongqiao International Airport. According to the prospectus of Shanghai Airport, Shanghai Airport is a company that manages Shanghai Hongqiao International Airport and Pudong Airport in a unified way (which was still under construction at the time of listing), and its controlling shareholder is Shanghai Airport (Group) Co., Ltd. Most of the funds raised by listing were used for the construction of Pudong Airport, and the first phase of Pudong Airport was completed at the end of 1999. In 22, the duty-free shop in Hongqiao Airport was closed. In 23, the landing gear and passenger throughput of Pudong Airport surpassed each other.
in 23, the company exchanged assets with Shanghai Airport (Group) Co., Ltd., and the company exchanged the business and related assets and liabilities of Hongqiao International Airport with the business and related assets and liabilities of Pudong International Airport owned by the group company and the 4% interest of Shanghai Pudong International Airport Aviation Oil Co., Ltd. held by the group company.
It is pointed out in the annual report of 25 that the main business of Shanghai Airport has been transferred to Pudong International Airport.
after the second phase project, the first phase reconstruction and the third phase project, Shanghai Pudong Airport has become the first and only airport with five runways in China. It can meet the passenger traffic of 8 million passengers a year.
At this point, the business of Shanghai Airport has basically taken shape and stabilized.
Look at the equity structure chart of Shanghai Airport again, which can be said to be very simple.
according to the semi-annual report of Shanghai airport in 22, there are 11 shareholding or holding companies under the Shanghai airport. Among them, Degao Momentum and aviation fuel contributed the most to the profits of Shanghai Airport.
II. Business model
The company operates and manages Pudong Airport, and its current business is mainly divided into aviation business and non-aviation business. Aviation business refers to basic business directly related to aircraft, passengers and cargo services; Other similar extended businesses, office leasing, check-in counter leasing, etc. are all non-aviation businesses. Pudong Airport belongs to a class I airport. At present, the charging standards for aviation services and other charging items are subject to government-guided prices according to the relevant documents of the Civil Aviation Administration, while the charging standards for non-aviation services are subject to market-adjusted prices.
According to the annual reports of Shanghai Airport. In 212, the proportion of aviation revenue in Shanghai Airport dropped to half of the total revenue, and the revenue from commercial catering rental rose to 3%. In the 216 annual report, the income source items were subdivided for the first time. In 217, non-aviation income exceeded aviation income for the first time, and the gross profit margin of non-aviation income exceeded aviation income for the first time.
aviation business used to be the pillar business of the airport, but non-aviation revenue achieved overtaking in 217 with its extremely high growth rate. In the non-aviation revenue, the duty-free business of Shanghai Airport is the mainstay. With its tax-free business model of sitting on the ground and collecting rent, the airport has great voice and bargaining power in the negotiation. Among the major airports in China, Shanghai Airport has the largest international passenger flow and the highest proportion, which naturally has fertile soil and potential for duty-free business. In 219, the tax-free income of Shanghai Airport exceeded the aviation income and became the main source of income for Shanghai Airport. Duty-free brought a strong consumption attribute to Shanghai Airport.
Duty-free income has become the main income source of Shanghai Airport, and it is also the fastest growing business. As a public enterprise, Shanghai Airport has weakened the periodicity by using the consumption attribute.
iii. competitive pattern
the competitive pattern of civil airports will be analyzed from five aspects: aviation business, profitability, capacity, duty-free business and geographical location.
(I) Aviation business
Shanghai Airport is the airport with the highest proportion of international and regional passengers among the major large international airports in China, exceeding 5% in 219. In the Notice on the Adjustment Scheme of Civil Airport Charging Standards, due to the heavy tonnage of international flights, the aviation expenses such as landing fees of international flights are much higher than those of domestic flights. This is an important reason why the profitability of aviation business of Shanghai Airport is stronger than that of large airports such as Capital Airport.
In 219, the revenue scale of Shanghai Airport surpassed that of Capital Airport, and the decline in the revenue scale of Capital Airport was related to the commissioning of Daxing Airport.
(II) Profitability
The ROE of Shanghai Airport is the highest among the four major airports, and it shows an upward trend over the years. As can be seen from the annual report, the gross profit margin and net interest rate of aviation business and non-aviation business of Shanghai Airport are higher than those of other airports, and the income of various businesses has also increased steadily.
although the revenue of Shanghai airport did not exceed that of the capital airport until 219, and the annual passenger throughput of the capital airport has always been the largest airport, the net profit and ROE of Shanghai airport have always been far ahead, showing strong capital utilization ability and profitability transformation ability.
It is worth mentioning that the company's own funds are used in every expansion project and transformation of Shanghai Airport, which reflects the strong financial control ability of Shanghai Airport. Since the company went public, it has only issued corporate bonds once, and the company has abundant cash flow, so it has the ability to deal with emergencies such as epidemics.
(III) Production capacity
At present, Shanghai Airport is the only airport with five runways in China, and its production capacity is second only to that of the Capital Airport, far exceeding that of Shenzhen Airport.
(4) Duty-free business
The main business source of Shanghai Airport in recent years is tax-free income. The duty-free business of Shanghai Airport has a very large operating area. Together with the satellite hall put into operation in 219, Shanghai Airport has a very large operating area. Judging from the per capita duty-free consumption of major airports, Shanghai Airport is indeed the airport with the strongest profitability in duty-free business, and there is no one.
(V) Geographical location
From the geographical location of Shanghai Airport, the Yangtze River Delta is the largest urban agglomeration in China, with a total population of over 2 million, far ahead of Sichuan, Chongqing and Beijing-Tianjin-Hebei regions. At the same time, the Yangtze River Delta is also the most developed urban agglomeration in China with the highest per capita GDP, with strong purchasing power and consumption power. Among dozens of airports in the Yangtze River Delta, Shanghai Airport is the only Class I airport (only Class I airport is regulated by market price for non-aviation important business), strategically positioning itself as an international aviation hub, and the diversion function of surrounding airports to Shanghai Airport is extremely limited.
Fourth, the moat and the underlying logic
(1) Overlord of the Yangtze River Delta Airport Group
The Yangtze River Delta is an urban agglomeration with the largest economic population, the widest area, the highest per capita GDP and the largest import and export trade volume in China. Being the airport with the highest share in the Yangtze River Delta region means that there are the most potential customers and a greater source of potential profits. Guangzhou Baiyun Airport and Shenzhen Baoan Airport in the Pearl River Delta Airport Group are the first-class airports, and Hong Kong International Airport is an international aviation hub in the Asia-Pacific region. The three airports are concentrated in location, with a small gap in passenger throughput, which has a certain diversion effect between airports, and the advantages of regional hub airports are not obvious. In the Beijing-Tianjin-Hebei airport group, due to the early completion of the Capital Airport, some facilities are congenitally deficient and outdated, the Capital Airport is in the "window period" of flight transition on some routes. In addition, Beijing Airport is also facing the transformation and upgrading of its development structure. In the future, it will transfer some international hub functions to Daxing Airport and relieve some non-core hub functions to Tianjin and Shijiazhuang airports, and its absolute advantage will be weakened. Among the airports in the Yangtze River Delta, Shanghai Pudong Airport is positioned as an international aviation hub, and the proportion of international passenger throughput is much higher than that of other airports in the Yangtze River Delta. Shanghai Hongqiao Airport is positioned as a domestic aviation hub, which only diverts some domestic passengers, while the airports in the surrounding areas are all second-class or third-class airports, and the geographical location is relatively far, and the impact of diversion is limited. The layout planning of the Yangtze River Delta Airport is better, and the positioning of Shanghai Airport is clear, with outstanding geographical advantages.
(II) Excellent international geographical location
Shanghai is the largest economic center city in China, which is located at the end of the triangle routes in Asia, Europe and North America. The flight time to the west coast of Europe and North America is about 1 hours, and the flight time to major cities in Asia is within 2 to 5 hours, so the voyage is moderate. Shanghai is located at the intersection of the eastern coastal economic development belt of China and the Yangtze River Economic Belt, and the Yangtze River Delta, the direct service area, is the economic sector with the fastest economic development, the largest economic aggregate and the most development potential in China. The two-hour flight circle in the indirect service area is rich in resources, including 8% of the top 1 cities in China, 54% of the land resources and 9% of the population, 93% of the GDP output area and most areas of Japan and South Korea. Shanghai is located at the intersection of the eastern coastal economic development belt of China and the Yangtze River Economic Belt, and its direct service area is the Yangtze River Delta region. At present, 16 civil airports have been opened in the Yangtze River Delta region. In 219, the passenger throughput of airports in the Yangtze River Delta region was 24 million, which was higher than that of Guangdong-Hong Kong-Macao Greater Bay Area (22 million) and Beijing-Tianjin-Hebei (15 million). In the Yangtze River Delta region, Shanghai Airport has the highest airport level, the highest passenger throughput and the most intensive international flight waves, which is the core of the Yangtze River Delta Airport.
(3) Excellent fund management and operation ability.
Shanghai Airport is the only airport that has not received external financing for its expansion and reconstruction, and the project funds of Shanghai Airport are all financed by its own funds. The outstanding characteristics of Shanghai Airport are low asset-liability ratio, abundant free cash flow, strong ability to create cash flow, good ability to use funds, high gross profit margin and net interest rate, and stable dividends. Even under the negative influence of the trade war and the unstable situation in Hong Kong, Shanghai Airport has maintained a high profit and a stable growth rate.
(IV) Duty-free industries with sustained prosperity
After China International Travel Service acquired China and Shanghai in 217-218, China's duty-free business opened an era of rapid growth. The airport and duty-free shops are a bit like the relationship between landlords and tenants. In bargaining negotiations, Shanghai Airport can better grasp the right to speak. As can be seen from the 219 annual report of China International Travel Service, Shanghai Airport has taken more than 8% of the profits of China International Travel Service, and its bargaining power is excellent. Compared with duty-free in Hainan Island, the entry rate of duty-free shops in Shanghai Airport is very high, nearly twice that of Hainan Island. Generally, it only takes about half an hour to arrive by high-speed train, but most people will choose to arrive at the airport one to two hours in advance by plane, and the airport is the last stop before international passengers leave the shore, which is the natural advantage of airport duty-free shops.
(V) Stable and profitable equity investment
There are more than ten joint ventures or joint ventures under the Shanghai Airport, among which airport advertising and aviation fuel have contributed the most to the performance of the airport. Degao Momentum's advertising business has been extended to Chongqing Jiangbei Airport and other large airports, and its profit contribution to Shanghai Airport will be greater and greater in the future. With the increase of crude oil price, aviation fuel is expected to increase its profit. By the way, the runway and terminal building of Shanghai Airport are leased by the parent company Airport Group, which accounts for about 17% of aviation revenue every year. It should be noted that in recent years, the decrease in passenger flow has brought about a decrease in aviation income, and the profit ratio of Shanghai Airport will be higher when the rent is stripped.
After the epidemic,
Let's take a look at the impact of SARS on Shanghai Airport's revenue in 23. In 23, Shanghai Airport's revenue increased by 7% against the trend, but its liabilities decreased by 2%. In addition, the duty-free shops moved to Pudong Airport in 23, and the Pudong Airport was able to maintain a healthy financial situation despite the large depreciation caused by its completion, indicating that SARS had little impact on Shanghai Airport's profit in that year.
Let's look at the new contract between Shanghai Airport and China Zhongmian. To put it simply, the original contract for the airport to collect the highest guarantee and sales commission has now become 8% of the international passenger flow in 219, and the commission is taken; 8% of international passenger flow in 219 is guaranteed. It means that the rent charged by Shanghai airport has changed from "no bottom and no top" to "no bottom and no top", and the rent collection is decoupled from sales. However, in the case that the short-term epidemic will not recover quickly, it is a compromise and concession made by Shanghai Airport to maintain the channel advantage.
At present, Shanghai Airport has released the performance forecast for 22, and the revenue situation is not as good as expected. However, under such differences, let's make a prospect for the future of Shanghai Airport.
According to the briefing on transportation production released by Shanghai Airport, with the improvement of overseas epidemic situation, the number of international passengers at Shanghai Airport will continue to increase. With the large-scale vaccination of superimposed vaccines, there is already room for imagination to control the epidemic.
Outlook
Let's review the growth logic of Shanghai Airport and ask investors six questions:
(1) Shanghai Airport is the overlord of civil airports in the Yangtze River Delta, an economically developed area. Will this situation change after the epidemic?