HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

China Southern Airlines / Equity Bottom-Up

<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> has caught up in its passenger traffic in Sep with a 27.5% YoY decline, compared with -32.2% for <a href="https://www.smartkarma.com/entities/china-eastern-airlines-co-h" target="_blank" data-smartkarma-citation="entities:1079:1" rel="noopener">China Eastern Airlines Co (H) (670 HK)</a> and -38.6% 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>. More importantly, domestic passenger traffic reached a growth of 1.6% YoY, suggesting a full recovery in last month. CSA also performed well on capacity management - achieving the best passenger, cargo and overall load factors for Sep and 9M20 among the big three. We expect the good traffic recovery, solid load factors, QoQ increase in average fare and sharp appreciation in Rmb will support encouraging bottom line rebound in 3Q20, with a slight potential of reporting a profit in the quarter. In our view, CSA remains inexpensive at 0.8x 12-month forward P/B given its underlying recovery momentum and below-average valuation.

China Southern Airlines (1055 HK) has caught up in its passenger traffic in Sep with a 27.5% YoY decline, compared with -32.2% for China Eastern Airlines Co (H) (670 HK) and -38.6% for Air China Ltd (H) (753 HK). More importantly, domestic passenger traffic reached a growth of 1.6% YoY, suggesting a full recovery in last month. CSA also performed well on capacity management - achieving the best passenger, cargo and overall load factors for Sep and 9M20 among the big three. We expect the good traffic recovery, solid load factors, QoQ increase in average fare and sharp appreciation in Rmb will support encouraging bottom line rebound in 3Q20, with a slight potential of reporting a profit in the quarter. In our view, CSA remains inexpensive at 0.8x 12-month forward P/B given its underlying recovery momentum and below-average valuation. 

China Southern Airlines (1055 HK): Impressive Sep Sets Strong Tone for 4Q20

Shanghai International Airport / Equity Bottom-Up

<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> witnessed sustained strength on its domestic and cargo throughput in Sep, outperforming both <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> 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> by very significant margins. In fact, SIAC is the only airport among the big three to consecutive YoY growth in domestic passenger traffic in the last two months. In Sep, domestic aircraft movement surged 18.9% YoY and domestic passenger throughput grew 13.5% YoY, and both are impressive turnouts. In our view, the strong domestic performance, good demand during the "double festival" Golden Week and China International Import Expo to be held in Shanghai during 5-10 Nov should ensure continued strength in SIAC's traffic in 4Q20.

Shanghai International Airport (600009 CH) witnessed sustained strength on its domestic and cargo throughput in Sep, outperforming both Guangzhou Baiyun International Airport (600004 CH) and Beijing Capital International Airport (BCIA) (694 HK) by very significant margins. In fact, SIAC is the only airport among the big three to consecutive YoY growth in domestic passenger traffic in the last two months. In Sep, domestic aircraft movement surged 18.9% YoY and domestic passenger throughput grew 13.5% YoY, and both are impressive turnouts. In our view, the strong domestic performance, good demand during the "double festival" Golden Week and China International Import Expo to be held in Shanghai during 5-10 Nov should ensure continued strength in SIAC's traffic in 4Q20.

Shanghai International Airport (600009 CH): Best Momentum Against Peers in Sep

Asian Equities Analyst, Logistics & Transport, Tracking Traffic

Daniel Hellberg

Asian Equities Analyst, Logistics & Transport

Tracking Traffic

Focusing on Asian logistics, transportation, and travel companies

Chinese media reports Chinese tourism activity during the long Golden Week + National Day holiday period declined by about 21% YoY to 637 mn person-visits. Spending on tourism during the period reportedly fell by 28% YoY to 466 bn RMB. 
Some observers are suggesting these numbers show a strong continued recovery in tourism demand since activity collapsed in Q1 this year due to the Covid19 pandemic.
But we disagree.
In our view, the headline 2020 Golden Week+ numbers we have seen so far are not as strong as we would have expected, given a number of factors that actually should have flattered this year's overall activity and spending numbers. 
A closer analysis of the numbers actually suggests tepid tourism demand, in our opinion, and we do not believe the recovery has gained momentum in October.

Chinese media reports Chinese tourism activity during the long Golden Week + National Day holiday period declined by about 21% YoY to 637 mn person-visits. Spending on tourism during the period reportedly fell by 28% YoY to 466 bn RMB. 
Some observers are suggesting these numbers show a strong continued recovery in tourism demand since activity collapsed in Q1 this year due to the Covid19 pandemic.
But we disagree.
In our view, the headline 2020 Golden Week+ numbers we have seen so far are not as strong as we would have expected, given a number of factors that actually should have flattered this year's overall activity and spending numbers. 
A closer analysis of the numbers actually suggests tepid tourism demand, in our opinion, and we do not believe the recovery has gained momentum in October.  

China's 'Golden Week': Headline Tourism Numbers Hardly Shine

Guangzhou Baiyun International Airport / Equity Bottom-Up

There is full recovery in both domestic aircraft movement and passenger throughput 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> in Sep, which registered YoY growth of 8.5% and 0.7%, respectively. The figures suggested further strength in the domestic market and should reflect positively on a QoQ in GBIA's profitability improvement. Also, the initial figures for the Golden Week have pointed to a 4.9% higher daily aircraft movement and 8.2% higher daily passenger throughput than the average in Sep. We believe the rebound of international passenger will be an increasingly important driver for GBIA's traffic recovery over the next 12 months. For example, <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> has already increased its international flights departing from Guangzhou from 16 in Sep to 20 in Oct. GBIA has also obtained approval for non-public issuance of A-shares to its parent to raise fresh equity of Rmb3.2bn, and we believe these are all positive developments for the company.

There is full recovery in both domestic aircraft movement and passenger throughput at Guangzhou Baiyun International Airport (600004 CH) in Sep, which registered YoY growth of 8.5% and 0.7%, respectively. The figures suggested further strength in the domestic market and should reflect positively on a QoQ in GBIA's profitability improvement. Also, the initial figures for the Golden Week have pointed to a 4.9% higher daily aircraft movement and 8.2% higher daily passenger throughput than the average in Sep. We believe the rebound of international passenger will be an increasingly important driver for GBIA's traffic recovery over the next 12 months. For example, China Southern Airlines (1055 HK) has already increased its international flights departing from Guangzhou from 16 in Sep to 20 in Oct. GBIA has also obtained approval for non-public issuance of A-shares to its parent to raise fresh equity of Rmb3.2bn, and we believe these are all positive developments for the company.

Guangzhou Baiyun Intl Airport (600004 CH): Sep Marked the First Dual YoY Growth

Silver Point

Thomas J. Monaco

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

*Trip.com Should Continue to Get a Significant Upward Re-Rating: Mainland China has been at the epicenter of this tourism slowdown. If the virus impact continues to be held in check for 2-3 weeks post-Golden Week, the risk to tourism and confidence should start to seriously abate; and *Travel Rebound Underway: The good news is that mainland China hasn’t “officially” reported local COVID-19 infections since August 15th, although there were two asymptomatic cases disclosed in late September. After nine plus months of hiding and the Covid-19 pandemic largely under control in mainland China, the Ministry of Culture and Tourism stated that the first four days of the Golden Week holiday beginning October 1st witnessed nearly 425 mn local trips - nearly 80% of the level posted in 2019.

*Trip.com Should Continue to Get a Significant Upward Re-Rating: Mainland China has been at the epicenter of this tourism slowdown. If the virus impact continues to be held in check for 2-3 weeks post-Golden Week, the risk to tourism and confidence should start to seriously abate; and *Travel Rebound Underway: The good news is that mainland China hasn’t “officially” reported local COVID-19 infections since August 15th, although there were two asymptomatic cases disclosed in late September. After nine plus months of hiding and the Covid-19 pandemic largely under control in mainland China, the Ministry of Culture and Tourism stated that the first four days of the Golden Week holiday beginning October 1st witnessed nearly 425 mn local trips - nearly 80% of the level posted in 2019.

China

China Eastern Airlines Corporation Limited operates airline businesses. The Company provides passenger transport, air freight, air catering, and other related services. China Eastern Airlines conducts businesses worldwide.

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China Eastern Airlines Lt (600115 CH)

China Southern Airlines (1055 HK): Impressive Sep Sets Strong Tone for 4Q20

China Southern has the best traffic and load factor among the big three airlines in Sep. Good traffic, load expansion, fare improvement and Rmb...

Osbert Tang, CFA

Shanghai International Airport (600009 CH): Best Momentum Against Peers in Sep

Shanghai Intl Airport recorded encouraging growth of 18.9% in domestic aircraft movement and 13.5% in domestic passenger traffic in Sep. They are...

Osbert Tang, CFA

China's 'Golden Week': Headline Tourism Numbers Hardly Shine

Contrary to some, we do not believe headline tourism numbers from the recent Golden Week suggest improving conditions in China's domestic travel...

Tracking Traffic

Guangzhou Baiyun Intl Airport (600004 CH): Sep Marked the First Dual YoY Growth

Sep marked the first month of positive growth in both domestic aircraft movement and passenger throughput at Guangzhou Baiyun Intl Airport; and we...

Osbert Tang, CFA

Trip.com – All Systems Go

Trip.com - All Systems Go: Travel during Golden Week, and C-Trip looks to be biggest beneficiary as largest online travel agency.

Thomas J. Monaco

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