Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Equity Bottom-Up

Guangzhou Baiyun International Airport / Equity Bottom-Up

Within the hospitality-affected complex, the airline industry garners the lion's share of the negative news from the Covid fall-out. The <a href="https://www.bloomberg.com/quote/280456Z:CN" target="_blank" rel="noopener">International Air Transport Association</a> said last month it estimates losses in 2021 of US$48bn, up from $38bn previously. And that's on top of an estimated $370bn of losses to the industry in FY20, <a href="https://www.icao.int/Newsroom/Pages/2020-passenger-totals-drop-60-percent-as-COVID19-assault-on-international-mobility-continues.aspx" target="_blank" rel="noopener">according</a> to the International Civil Aviation Organization.
But spare a thought for the airports which facilitate the arrival and departure of these airlines, as this crisis becomes increasingly protracted, and in many ways, deeper than many anticipated 18 months ago.
Amid the doom and gloom, there are parking bays of good news. April's domestic air passenger traffic in China was ~96% of December 2019 levels. <a href="https://www.smartkarma.com/entities/shenzhen-airport-co-ltd" target="_blank" data-smartkarma-citation="entities:15522:1" rel="noopener">Shenzhen Airport Co A (000089 CH)</a> (SZAC) is at level pegging with overall traffic numbers in 2019, and domestic flow into SZAC, <a href="https://www.smartkarma.com/entities/shanghai-international-airport-co-ltd" target="_blank" data-smartkarma-citation="entities:6511:1" rel="noopener">Shanghai International Airport (600009 CH)</a>, and <a href="https://www.smartkarma.com/entities/guangzhou-baiyun-international-airport" target="_blank" data-smartkarma-citation="entities:10819:1" rel="noopener">Guangzhou Baiyun International Airport (600004 CH)</a> all exceed 2019 levels. 
Yet outside of the Chinese airport space, where international passenger throughput has historically commanded &gt;40%+ of total throughput - up to 80% for <a href="https://www.smartkarma.com/entities/airports-of-thailand-pcl" target="_blank" data-smartkarma-citation="entities:239:1" rel="noopener">Airports of Thailand (AOT TB)</a> -  the outlook remains subdued, and largely uncertain.
Just this week, Thailand recorded its highest level of Covid-related fatalities, Taiwan is facing its first serious outbreak, and Australia's state of Victoria entered its fourth lockdown. 
Provided airports have sufficient funds to ride out the tough times to the other side of the valley, all will undergo a major re-rate when international travel restarts. Yet the vaccine rollout - and uptake - and when international borders will reopen, remain indeterminate.
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What's Original?
This insight presents a comprehensive view of the key Chinese airports (<a href="https://www.smartkarma.com/entities/beijing-capital-international-airport-bcia" target="_blank" data-smartkarma-citation="entities:10626:1" rel="noopener">Beijing Capital International Airport (BCIA) (694 HK)</a>, Shenzhen Airport, <a href="https://www.smartkarma.com/entities/shanghai-international-airport-co-ltd" target="_blank" data-smartkarma-citation="entities:6511:1" rel="noopener">Shanghai International Airport (600009 CH)</a>, and <a href="https://www.smartkarma.com/entities/guangzhou-baiyun-international-airport" target="_blank" data-smartkarma-citation="entities:10819:1" rel="noopener">Guangzhou Baiyun International Airport (600004 CH)</a>, together with <a href="https://www.smartkarma.com/entities/airports-of-thailand-pcl" target="_blank" data-smartkarma-citation="entities:239:1" rel="noopener">Airports of Thailand (AOT TB)</a>, <a href="https://www.smartkarma.com/entities/malaysia-airports-hldgs-bhd" target="_blank" data-smartkarma-citation="entities:117:1" rel="noopener">Malaysia Airports Hldgs (MAHB MK)</a>, <a href="https://www.smartkarma.com/entities/japan-airport-terminal-co" target="_blank" data-smartkarma-citation="entities:18034:1" rel="noopener">Japan Airport Terminal Co (9706 JP)</a>, <a href="https://www.smartkarma.com/entities/sydney-airport" target="_blank" data-smartkarma-citation="entities:19063:1" rel="noopener">Sydney Airport (SYD AU)</a> and <a href="https://www.smartkarma.com/entities/auckland-intl-airport-ltd" target="_blank" data-smartkarma-citation="entities:597:1" rel="noopener">Auckland Intl Airport (AIA NZ)</a>.
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Within the hospitality-affected complex, the airline industry garners the lion's share of the negative news from the Covid fall-out. The International Air Transport Association said last month it estimates losses in 2021 of US$48bn, up from $38bn previously. And that's on top of an estimated $370bn of losses to the industry in FY20, according to the International Civil Aviation Organization.
But spare a thought for the airports which facilitate the arrival and departure of these airlines, as this crisis becomes increasingly protracted, and in many ways, deeper than many anticipated 18 months ago.
Amid the doom and gloom, there are parking bays of good news. April's domestic air passenger traffic in China was ~96% of December 2019 levels. Shenzhen Airport Co A (000089 CH) (SZAC) is at level pegging with overall traffic numbers in 2019, and domestic flow into SZAC, Shanghai International Airport (600009 CH), and Guangzhou Baiyun International Airport (600004 CH) all exceed 2019 levels. 
Yet outside of the Chinese airport space, where international passenger throughput has historically commanded &gt;40%+ of total throughput - up to 80% for Airports of Thailand (AOT TB) -  the outlook remains subdued, and largely uncertain.
Just this week, Thailand recorded its highest level of Covid-related fatalities, Taiwan is facing its first serious outbreak, and Australia's state of Victoria entered its fourth lockdown. 
Provided airports have sufficient funds to ride out the tough times to the other side of the valley, all will undergo a major re-rate when international travel restarts. Yet the vaccine rollout - and uptake - and when international borders will reopen, remain indeterminate.

What's Original?
This insight presents a comprehensive view of the key Chinese airports (Beijing Capital International Airport (BCIA) (694 HK), Shenzhen Airport, Shanghai International Airport (600009 CH), and Guangzhou Baiyun International Airport (600004 CH), together with Airports of Thailand (AOT TB), Malaysia Airports Hldgs (MAHB MK), Japan Airport Terminal Co (9706 JP), Sydney Airport (SYD AU) and Auckland Intl Airport (AIA NZ).


HK/China Equity Long-Short

Osbert Tang, CFA

Apr is a good month for <a href="https://www.smartkarma.com/entities/air-china-ltd-h" target="_blank" data-smartkarma-citation="entities:8239:1" rel="noopener">Air China Ltd (H) (753 HK)</a> as it marks the first month since COVID-19 outbreak that its passenger growth outpaced that for <a href="https://www.smartkarma.com/entities/china-southern-airlines-co-ltd" target="_blank" data-smartkarma-citation="entities:1078:1" rel="noopener">China Southern Airlines (1055 HK)</a> - its growth rate is 10.5pp ahead of CSA. In addition, freight traffic growth is also higher, and we think this send out stronger signal for narrower gap between the two going forward.Load factor performance in the month also pointed to a catch-up at Air China, which is a trend that we have been expecting. We believe the increase in vaccination rates, more border openings and resumption of direct international flights will be the major drivers for Air China - the resumption of operations of US Visa offices in China is a clear evidence for the gradual return to business as usual, in our view.

Apr is a good month for Air China Ltd (H) (753 HK) as it marks the first month since COVID-19 outbreak that its passenger growth outpaced that for China Southern Airlines (1055 HK) - its growth rate is 10.5pp ahead of CSA. In addition, freight traffic growth is also higher, and we think this send out stronger signal for narrower gap between the two going forward.Load factor performance in the month also pointed to a catch-up at Air China, which is a trend that we have been expecting. We believe the increase in vaccination rates, more border openings and resumption of direct international flights will be the major drivers for Air China - the resumption of operations of US Visa offices in China is a clear evidence for the gradual return to business as usual, in our view.

Air China (753 HK): Sending Out Stronger Signals

While the Mar traffic figures continued to show that <a href="https://www.smartkarma.com/entities/air-china-ltd-h" target="_blank" data-smartkarma-citation="entities:8239:1" rel="noopener">Air China Ltd (H) (753 HK)</a> is still lagging behind <a href="https://www.smartkarma.com/entities/china-southern-airlines-co-ltd" target="_blank" data-smartkarma-citation="entities:1078:1" rel="noopener">China Southern Airlines (1055 HK)</a> in many areas, there is no doubt that such underperformance is reducing sequentially. The latest figures show that Air China is narrowing its gap on passenger load factor, seeing rebound in international passenger traffic, registering better cargo and mail strengths and catching up on freight and overall load factors.We believe many of these attributes fit well into our arguments for a reversal of CSA's outperformance against Air China in this year as we written in <a href="https://www.smartkarma.com/insights/2021-high-conviction-pair-trade-long-air-china-753-hk-short-china-southern-1055-hk" target="_blank" data-smartkarma-citation="insights:45584" rel="noopener">2021 High Conviction: Pair Trade - Long Air China (753 HK), Short China Southern (1055 HK)</a>. The relative valuation also suggests CSA is richly valued against Air China. For details, please refer to our attached update presentation file on the trade.

While the Mar traffic figures continued to show that Air China Ltd (H) (753 HK) is still lagging behind China Southern Airlines (1055 HK) in many areas, there is no doubt that such underperformance is reducing sequentially. The latest figures show that Air China is narrowing its gap on passenger load factor, seeing rebound in international passenger traffic, registering better cargo and mail strengths and catching up on freight and overall load factors.We believe many of these attributes fit well into our arguments for a reversal of CSA's outperformance against Air China in this year as we written in 2021 High Conviction: Pair Trade - Long Air China (753 HK), Short China Southern (1055 HK). The relative valuation also suggests CSA is richly valued against Air China. For details, please refer to our attached update presentation file on the trade. 

Air China (753 HK): Further Evidences of Improving Against China Southern (1055 HK)

Thematic (Sector/Industry)

While <a href="https://www.smartkarma.com/entities/china-southern-airlines-co-ltd" target="_blank" data-smartkarma-citation="entities:1078:1" rel="noopener">China Southern Airlines (1055 HK)</a> sustained its outperformance against <a href="https://www.smartkarma.com/entities/air-china-ltd-h" target="_blank" data-smartkarma-citation="entities:8239:1" rel="noopener">Air China Ltd (H) (753 HK)</a> in its traffic in Feb, we have already seen some signs of positive factors for Air China emerging, leading us to believe that the unfavourable performance of our advocated <a href="https://www.smartkarma.com/insights/2021-high-conviction-pair-trade-long-air-china-753-hk-short-china-southern-1055-hk" target="_blank" data-smartkarma-citation="insights:45584" rel="noopener">2021 High Conviction: Pair Trade - Long Air China (753 HK), Short China Southern (1055 HK)</a> YTD will soon come to an inflection point.<a href="https://www.smartkarma.com/insights/smartkarma-webinar-pair-trade-long-air-china-short-china-southern-still-an-opportunity" target="_blank" data-smartkarma-citation="insights:47857" rel="noopener"></a>The positive signs that we saw are: 1.) stronger passenger load MoM and cargo traffic YoY in Feb at Air China; 2.) now that the Rmb/USD has weakened; 3.) rise in jet fuel more negative to CSA; and 4.) pick-up in Air China's fare after CNY. In valuation terms, CSA's sharp rally has returned it to 1.16x P/B, more than 1SD above historical average, and back to the level in early-2019 before the outbreak - which is not cheap anymore.

While China Southern Airlines (1055 HK) sustained its outperformance against Air China Ltd (H) (753 HK) in its traffic in Feb, we have already seen some signs of positive factors for Air China emerging, leading us to believe that the unfavourable performance of our advocated 2021 High Conviction: Pair Trade - Long Air China (753 HK), Short China Southern (1055 HK) YTD will soon come to an inflection point.The positive signs that we saw are: 1.) stronger passenger load MoM and cargo traffic YoY in Feb at Air China; 2.) now that the Rmb/USD has weakened; 3.) rise in jet fuel more negative to CSA; and 4.) pick-up in Air China's fare after CNY. In valuation terms, CSA's sharp rally has returned it to 1.16x P/B, more than 1SD above historical average, and back to the level in early-2019 before the outbreak - which is not cheap anymore.

2021 High Conviction Update: Chinese Airlines Pair Trade - Almost Getting to the Inflection Point

The sharp YoY rebound of the Feb domestic traffic (aircraft movement +81.8% and passenger traffic +139.5%) at <a href="https://www.smartkarma.com/entities/guangzhou-baiyun-international-airport" target="_blank" data-smartkarma-citation="entities:10819:1" rel="noopener">Guangzhou Baiyun International Airport (600004 CH)</a> is largely on the back of COVID-19 impacted low base in last Feb. When compared the 2M21 figures with the 'normal' 2M19 figures, it still indicated a 16.1% and 38.9% decline, suggesting that they are yet to fully resumed but are not too far away. We see positive signs for stronger pace in domestic traffic after the CNY starting Mar, and this should be good for GBIA given its heavy domestic exposure. Meanwhile, the increase in vaccination rates both domestically and internationally will bode well for air travel appetite, underpinning further traffic recovery. We continue to prefer GBIA to both <a href="https://www.smartkarma.com/entities/shanghai-international-airport-co-ltd" target="_blank" data-smartkarma-citation="entities:6511:1" rel="noopener">Shanghai International Airport (600009 CH)</a> and <a href="https://www.smartkarma.com/entities/beijing-capital-international-airport-bcia" target="_blank" data-smartkarma-citation="entities:10626:1" rel="noopener">Beijing Capital International Airport (BCIA) (694 HK)</a>.

The sharp YoY rebound of the Feb domestic traffic (aircraft movement +81.8% and passenger traffic +139.5%) at Guangzhou Baiyun International Airport (600004 CH) is largely on the back of COVID-19 impacted low base in last Feb. When compared the 2M21 figures with the 'normal' 2M19 figures, it still indicated a 16.1% and 38.9% decline, suggesting that they are yet to fully resumed but are not too far away. We see positive signs for stronger pace in domestic traffic after the CNY starting Mar, and this should be good for GBIA given its heavy domestic exposure. Meanwhile, the increase in vaccination rates both domestically and internationally will bode well for air travel appetite, underpinning further traffic recovery. We continue to prefer GBIA to both Shanghai International Airport (600009 CH) and Beijing Capital International Airport (BCIA) (694 HK). 

Guangzhou Baiyun Intl Airport (600004 CH): Further Narrowing the Gap

China

Beijing Capital International Airport Company Limited operates both aeronautical and non-aeronautical business in the Beijing airport.  The Company provides aircraft movement and passenger service facilities, safety and security services, fire-fighting services, and ground handling services.  In addition, Beijing Capital operates duty free and other retail shops and leases properties.

Beijing Capital International Airport (BCIA) (694 HK)

Beijing Capital International Airport (BCIA)

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Beijing Capital International Airport (BCIA) (694 HK)

Asia-Pac Airports: Ups, But Mostly Downs

Domestic passenger flow into Shenzhen Airport (000089 CH), Shanghai International Airport (600009 CH), and Guangzhou Baiyun International Airport...

David Blennerhassett

Air China (753 HK): Sending Out Stronger Signals

Apr is the first month since the pandemic that Air China outperformed CSA on overall passenger traffic growth. We expect this trend to gather...

Osbert Tang, CFA

Air China (753 HK): Further Evidences of Improving Against China Southern (1055 HK)

Air China looks to have reduced its gap against China Southern in many operating metrics in Mar, supporting our argument for reversal of share...

Osbert Tang, CFA

2021 High Conviction Update: Chinese Airlines Pair Trade - Almost Getting to the Inflection Point

Feb traffic is not too bad at CSA but we see some positive signs emerging at Air China, supporting a potential reversal of its underperformance...

Osbert Tang, CFA

Guangzhou Baiyun Intl Airport (600004 CH): Further Narrowing the Gap

GBIA's 2M21 traffic indicated it has significantly narrowed the gap with "normal" traffic in 2M19, largely on the back of good domestic routes. We...

Osbert Tang, CFA

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